Came across this today when I switched from WIX 3.0 and VS 2008 to WIX 3.5 and VS 2010.  The solution ended up being pretty simple.  Just need to update the Wix Project Properties to provide an additional parameter to the compiler and linker. These can be found at Wix Installer Project Properties > Tool Settings > Additional Parameters Compiler and Wix Installer Project Properties > Tool Settings > Additional Parameters Linker.  Just make sure to add ‘-ext WixIIsExtension’ in the fields and recompile.