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"Setup Projects" in Visual Studio 2005 can only be built from within Visual Studio. The lack of MSBuild support makes it difficult to create .msi packages using automated build tools. The WiX (Windows Installer XML) has a module called "Votive" that adds WiX integration to Visual Studio 2005. Announcement...
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Beta 1 of the Microsoft XNA Game Studio Express Beta 1 is out and can be downloaded here: http://msdn.com/directx/XNA/gse/ I haven't installed it mostly because it requires Visual C# Express and I've just recently paved this box and wasn't planning on installing any of the "Express" products this round...