In a 20 step nutshell (VS2005)
1) Click 'File' -> 'Add' -> 'New Project'.
2) Goto 'Other Project Types' and 'Setup and Development'.
3) Choose 'Setup Project'.
4) In the 'Solution Explorer' rightclick on your setup project.
5) Choose 'Properties'.
6) Click 'Prerequisites...' button.
7) Choose your prerequisites (e.g. .NET Framework, Windows Installer).
8) Press 'OK', press 'Apply'.
9) Rightclick on 'Application Folder' in the left File System window.
10) Choose 'Add' -> 'Project Output'
11) When done, rightclick in the Right File System window.
12) Choose 'Add' and whatever you want to add to the application directory
13) Rightclick on 'Project output from ....'
14) Select 'Create shorcut to Primary output from ...'
15) Rightclick on 'Shorcut to Primary output from...'
16) Choose 'Rename'
17) Name it after your application.
18) Select it and drag it to the left to 'User's Program Menu'.
19) (Build solution) Build your setup project.
20) In the setup project directory you'll find the .exe and .msi file to
install your application.
Pfffff... I need a rest and some coffee.