Since upgrading to Windows 2003 SP1 or Windows Vista, applications that depend on the components in external manifest files, stop working. For example SxS Registration Free COM.
Windows 2003 Server and later Operating Systems including Windows Vista, have a change in the manifest reading behaviour. Previously, in Windows XP the external manifest took priority over any embedded manifest. Therefore if there was an embedded manifest, the external manifest was used in preference. In Windows Server 2003 and later, this behaviour is in fact the opposite, the embedded manifest is now used in preference to an external manifest.
To see the workaround and solution please review: http://blogs.msdn.com/chrisforster/pages/ChangeToManifest.aspx