I mistakenly grabbed the latest WiX installer from here but the latest builds for version 3 are here under the weekly releases. There was an issue with the 3.0.2925 release with referencing the NETFRAMEWORK35 property in the WixNetFxExtension. This is fixed in later releases.

BTW, WiX rocks! Visual Studio 2008 integration is very nice. If you are looking for an alternative to the stock VS setup project and need more control over the MSI, I'd check it out.