Why do I get “An error occurred while validating. HRESULT = '80004005'” when building a setup project?

Question

Why do I get the following error when building a setup project?

An error occurred while validating. HRESULT = \'80004005\'

Answer 1

One project in solution had ToolsVersion="4.0" (in .csproj file), changed it to ToolsVersion="3.5" and setup project builds fine.