I have a Web Application project in Visual Studio 2008. (lucky you, you say? ha ha..)
It is Created from new, it's not a migrated project.
It's a file based web application project so IIS and FPSE blah are not involved.
I have the 'Delete all existing files prior to publishing' option selected from the publish dialog.
The result in the status bar is 'publish failed'. In the output window it moans about the in-ability to add two images and a user control (.ascx) file to the publish directory as they already exist there.