I am using WiX 3.5.1930 in Visual Studio 2010, targeting the .NET Framework 3.5. (Later weekly builds of WiX seem to be very broken with respect to their custom action temp
I hit upon another very simple (and stupid) cause for error 1154: misspelling the DLL entry name in the CustomAction element...
Comparing various causes other people have found it seems to me that error 1154 means in most cases, "DLL entry not found".