Assemblies that implement Asp.Nety Web Parts and are installed into a partialy trusted location, such as the bin directory, must be compiled with the AllowPartiallyTrustedAttribute set for import to succeed"
But the good thing is, I was able to resolve the error.
While creating the project VS 2005 added a signature file <filename>.snk file.
Please delete the <*.snk> file from the project and rebuild the project. Then put the DLL in the bin directory of the web site......
Now you should be able to add the web part to the SharePoint site.