Hmm... I remember someone from MS mentioning something about the assembly version number. I do not remember what it was he said about it. However, in my second posting to this issue, I mentioned that I did a grep on *.* at the root of our source tree for the offending version number string and could not find any file with this string. In addition, I only have exactly one copy of the offending assembly on my system. It is the newer version. Therefore, I believe VS.Net is caching the old version number somewhere. This issue is hugely hindering productivity.
MS is up to their old automagic crap (e.g. IE security settings, cross scripting, COM integration in outlook). Has anyone at MS heard of the KISS rule of thumb? You can read messages from the DOTNET archive, unsubscribe from DOTNET, or subscribe to other DevelopMentor lists at http://discuss.develop.com.