They finally fixed this up so now on Visual Studio 2010 you can build WP7 apps. From the release:

Beginning today you can download the Windows Phone Developer Tools CTP Refresh (WPDT CTP) from http://developer.windowsphone.com, which means you can now build Windows Phone 7 apps on the final release of Visual Studio 2010 (VS2010). While this update is primarily intended to enable development using the final release of VS2010 there are a few new things here too.

Examples of what’s new & changed include:

  • This release has been tested to work with the final release of Visual Studio 2010.
  • An updated Windows Phone 7 OS image for the Windows Phone Emulator.
  • A few APIs in the frameworks have been added and or changed. See this MSDN page for more details.
  • The documentation has been updated with new and expanded topics. See this MSDN page for more details.
  • We’ve provided limited support for launchers and choosers. In cases where the underlying built-in experience is not present launchers and choosers are still not available (i.e. the email chooser asks you to select a contact, but there are no contacts in the emulator and no way to add one).
  • Pause/Resume events are now supported.
  • If the tools are installed as the admin user, non-admin users are now able to deploy to the emulator.
  • A problem with incremental deployment of projects has been fixed.
  • A problem resulting in the error "Connection failed because of invalid command-line arguments" being displayed during project creation has been fixed.
  • A problem where the Windows Phone node was not appearing in VS 2010 on non-system drives has been fixed.
  • Design time skin refresh issues have been addressed.

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