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Originally Posted by jgm
But my PC says it already has Microsoft .Net Framework 3.5 SP1.I believe this a more recent Compact Framework version.
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That is not the Compact Framework, it is the full desktop Framework!
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Do I need to install .Net Compact Framework 2.0 files?
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Yes, on both device and desktop. The device needs it to run optimised compiled apps (the latest devices come with it pre-installed - earlier devices don't). The desktop needs it to compile optimised apps for the device as the compiler needs to access the Compact Framework assemblies at compile time.