Firstly I found out that I had installed the .net framework 3.0 redistributable rather than the framework for building apps. This hadn't caused problems before but anyway, I found and installed .Net framework 3.5 and now found two copies of the file that was being looked for in c:\windows\microsoft.net\framework\v2.0.50727 and now in the v3.5 directory. Since the project I was looking at was based on v3 stuff I decided that the project should find the version 3 one.
I opened the project file into wordpad and found that the import looked like this:
I restarted Visual Studio to force it reload the environment variables and then opened the project and hey presto. Quality.