[UPDATE 04/18/14] The Visual Studio team has released an extension to VS 2013 to address the feedback on this, which has been loud and clear for a long time now: Visual Studio Installer Projects Extension.
[UPDATE 11/6/12] Fixed broken links.
At the user group meeting last night, someone asked about the future of WiX. There was some confusion over the future of WiX since at one point there was a plan to ship it but then that changed. Rob Mensching, who leads the WiX project, is a developer on Visual Studio, and Visual Studio continues to contribute to the WiX project. We use WiX to create the installation packages for VS and a bunch of other stuff.
The Visual Studio setup projects will not ship again – VS 2010 was the last release with support for it. So, you’ll want to make plans to migrate to something else. Of course, I’d suggest looking into WiX, and there are other options as well. The MSDN page Choosing a Windows Installer Deployment Tool contains a table showing a comparison of VS setup projects, WiX, and InstallShield Limited Edition.
Future versions of Visual Studio will not include the Visual Studio Installer project templates. To preserve existing customer investments in Visual Studio Installer projects, Microsoft will continue to support the Visual Studio Installer projects that shipped with Visual Studio 2010 per the product life-cycle strategy. For more information, see Expanded Microsoft Support Lifecycle Policy for Business & Development Products.