I've only just tried the demo and like what I saw, but unless there is a specific problem with it running under .NET 2.+ you should remove the change or removev the requirment for .NET 1.1 from your installer. I have .NET 2.0 installed and after I removed the requirmed component line from the installer for .NET and installed it, it ran fine.
So are there issues with .NET 2 that I'm not seeing in the demo?