This error message occurs because the C# compiler is trying to embed a Vista manifest into your DLL. I believe you can also work around this problem by doing the following.
Navigate to the properties page for the project. At the bottom of the Application tab (should be selected) there is an label called "Manifest" and a combo box underneath that says "Embed manifest with default settings". Switch that to "Create Application without a manifest". I know that will work around the warning in VB and I'm pretty sure it will with C# as well.
