I had noticed the problem myself, and I don't know any solution to it.
It's still part of the aftermath of switching to VS 2008, maybe we
should have stayed with VS 2003 :-(

Out of curiosity: Is this Vista SP1? If so, can somebody try Vista RTM?
I recall that it used to work, but I don't have any Vista RTM
installation anymore.

In short, the problem is that Vista now complains about the .. in the
name attribute of the manifest; XP considers the manifest file fine.

A work-around is to place another copy of msvcr90.dll into the DLLs
order, and adjusting the manifest to point to this copy. I rejected this
solution, as it causes two copies of the CRT to be loaded (as can be
seen in sysinternals process explorer). Loading two copies of the CRT
itself caused problems in the past (e.g. when FILE* is passed across DLL
boundaries).

As a consequence, I propose that the "for me" installation just isn't
supported on Vista; it should be easy to adjust the UI accordingly.
Vista users should invoke the "for all installation" (and I should
change the installer back to invoking UAC).

In any case, I don't think this should block the release, given that no
real solution seems possible.