I got this problem just as soon as I upgraded to DotNet FW 3.5 SP1 on a commercial storefront package. Been looking for a solution, nothing in this forum works.
To make matters far worse, the web application cannot be loaded into Visual Studio 2008 with FW 3.5 SP1 loaded on that machine, making debugging completely impossible.
FW2.5 SP1 does not uninstall completely, making a complete rebuild of the Operating System the only possible solution (after 100+ hours w/ "experts" and thousands of dollars later, that was their advice!) just to get back to normal.
Good luck! There is no solution to this except to completely re-build your application from scratch on a Framework 3.5SP1 machine w/VS2008 SP1 and not using ANY 3rd party dlls (unless you can get a written guarantee that their code is fully compatible and not just re-packaged crapware).