I've been messing around with Web Setup Projects in Visual Studio 2008 and have been using them to deploy an ASP application I've been working on. One thing I've learned is that Web Setup is very temperamental as far as how your development environment is setup. I've had to do everything from computer restarts to registry hacks to get my Projects to build, and thought I had finally nailed down all the issues until I had to redeploy my application today.
Upon building the Web Setup project I would get the "Build Failed" message along with no errors. Puzzled, I enabled detailed build logging in Visual Studio's options. And still, no errors.
As developers we've all gone through the process of problem solving. You start trying reasonable solutions that seem logically correlated to the issue at hand, and failing that slowly devolve into more obscure and senseless solutions that aren't even remotely related to what you're trying to fix. And this is precisely what happened.
What fixed my problem? Instead of opening my solution from the "Recent Projects" menu in the Visual Studio Start Page, I opened the solution through File > Open > Web Site...
Like I said, a senseless solution to a problem that should have never existed in the first place.