See if this helps:
http://www.codeproject.com/dotnet/dotnetdeployment.asp
My developer isn't going to be back in the office for another week, he has run into this issue before and has a fix using the setup project deployment method but I can't remember the details.
We build internal applications so my WSUS server takes care of keeping everyone up to date on the latest framework. Other than that I can remember having to add a component in the install process for a ReportViewer control to work properly.
By right clicking on your project in the solution designer, then going to the publish tab, then choosing prerequisites you can modify a few things in there...also there are a ton of publishing options I haven't explored. Poke around and see what you come up with.
Good luck and let us know how you make out.
Jon