In my WPF XBAP application, I've been trying to deploy it into remote server (It contains public domain) and install an application using certificate authority installer pre-requisites (since my application is running in Full-Trust mode) and the .NET Framework 3.5 SP1. I have set option which should download all the pre-requisites from the same location as the application. The application is published using Visual Studio 2008 Professional Edition. If .NET Framework 3.5 is already installed then the ClickOnce installation should works fine. Otherwise it should download the missing pre-requisites from the same location and install to the Client machine.
If you try to download the application on the clean XP machine, you might have been facing the following issue.
"An error occurred downloading the following resource:http://hostname/sampleapp/DotNetFX35/dotNetFX20/aspnet.msp"
In order to avoiding this issue, you would have to add the MIME type of the .msp file to the IIS of hosting server. You can access the MIME types by going into your site's properties -> HTTP headers -> MIME types then click NEW and add an extension and MIME type.
Extension : .msp
MIME : application/microsoftpatch
MIME : application/microsoftupdate
Please refer this link for more details.
Hope it will help!!