How are you deploying the prerequisite? Are you just clicking ".Net 3.5 SP-1" under the Prerequisite dialog, and are you selecting "download from vendor site" or a different option?
Second question: how are you installing the applicaton? Are you clicking on (or does your link point to) the setup.exe file, or the yourappname.application file?
I ask the second question because setup.exe installs the prerequisites (if needed) and then fires off the clickonce part of the install (the application file).
RobinDotNet
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