More Info:
I tried to build the vdproj file, then delete the files that need to be excluded from the MSI and then "build" the vdproj again. This seems to exclude the files on some solution files only but in the other solution file the csproj would compile again. Has anyone seen these issues.
Steps that work using command line when done manually on development machine works, but the same steps on the build machine through team build does not work
1. devenv <vdproj> /build "Release"
2. delete the files to be excluded
3. devenv <vdproj> /build "Release"