To run the WPF application, you need to install .net 3.0 (it is always preinstalled in Vista).
There are several tricks for copying some dlls with 3.0 or 3.5 to .net 2.0 installations, but this is not supported - it means that it can work, but it can also break other applications, and it can stop working every time something is updated system - so please don't do this.
The good news is that .net 3.5sp1 (plus some bug fixes) will be coming soon in Windows Updates - so this problem may be temporary.
If you decide to target to 3.0 rather than 3.5, you just need to be careful not to use anything new from 3.5 and test 3.0 before release.
BTW, WPF support in VS2005 is really bad and has never been officially released; you can consider upgrading to VS2008, even with the free express version of VS2008, WPF development tools are much better than VS2005.
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