Not as easy as one would think:
Guide to deploying the .NET framework 3.5 from the same location as your application in VB Express Edition 2008
even after one goes through all this unzip and placement, one needs to add extenions to the publish site:
I also ran into this problem. I encountered the problem after moving my clickonce app to IIS6. In windows XP (IIS5) it seems to work out of the box. Anyway, after hunting around I was able to get it working. I had to add MIME types for the offending files. You can access the MIME types by going into your site’s properties -> HTTP headers -> MIME types -> click NEW….then add an extension and MIME type.
I added these to get it working
After doing this my .Net 3.5 prerequisites installed fine.
Hope this helps someone…