You would receive the below error message while running a ClickOnce bootstrapper created using Visual Studio 2012 on Windows XP systems.
Clickonce bootstrapper engine (setup.exe) that was shipped with Visual Studio 2012 is NOT compatible with any OS below Windows Vista. So, the above error message is expected and by design. The reason for this behavior is because the bootstrapper is compiled using the VC compiler and the Dev11 VC compiler does not support Windows XP.
So the workaround is to install all the prerequisites manually and launch the ClickOnce application directly from deployment manifest file (.application). Another workaround would be to create a sample ClickOnce application using Visual Studio 2010 OR Visual Studio 2008 with the same name as mentioned in Visual Studio 2012 and publish it. From the published location take the setup.exe bootstrapper and replace the existing setup.exe bootstrapper created using Visual Studio 2012
Microsoft VC development team has done work to make VC compilers work on Windows XP in Visual Studio 2012 Update 1 CTP 3 http://www.microsoft.com/en-us/download/details.aspx?id=34818 This Visual Studio 2012 Update 1 CTP 3 patch provides an opportunity to users in building VS2012 C++ project for Win XP OS. For the users who want to develop their applications using Dev11 VC compiler (v110) for Windows XP OS, would need to install Visual Studio 2012 Update 1 CTP 3 patch.