I opened Michael Schwarz's AjaxPro solution in Visual Studio 2005 and I was greeted with this:

As you can see, this is running from the C: drive on my local development machine. Guessing that this problem might be related to the fact that I added my local machine to IE's list of trusted sites, I removed that setting. Unfortunately, the dialog persisted.
Next I added a new code group to my LocalIntranet_Zone and gave full trust to the URL "file://C:\*". Even that didn't resolve the issue. My next step was to open all the csproj files and the sln file for the solution and look for anything that might trigger this dialog. I deleted all the TFS source code control settings (I don't use CodePlex), but that didn't help.
At this point, I don't have an answer. Has anyone else seen "The project location is not trusted" for projects on the C: drive?!
Did you come to this page because you are also getting the message, "The project location is not trusted"? If so, and if you are trying to run a Visual Studio project from a UNC path (or mapped drive), here are the steps I use to solve that particular situation. These steps work fine - I regularly work on Visual Studio projects that are located on a UNC path using the setup described below.
All it takes is to give the file share where my projects are located FullTrust permission. Here are the steps:
- Start Mscorcfg.msc. In the default installation of VS 2005, it is located at "C:\Program Files\Microsoft Visual Studio 8\SDK\v2.0\Bin\mscorcfg.msc".
- Expand the Runtime Security Policy node, the Machine node, the Code Groups node, and the All_Code node, and then highlight the LocalIntranet_Zone node.
- In the right pane, click Add a Child Code Group.
- Choose Create a new code group, enter a name for the code group, and then click Next. I usually name it after my server and path.
- Choose a condition type of URL, and enter the UNC path to the share location of your project, using the format:
file://\\servername\sharename\*
where \\servername\sharename is the name of the share. Click Next.
Make sure to add the asterisk at the end of the path -- and note that the weird looking combination of slashes (//\\)isn't a typo.
- Choose Use existing permission set and select FullTrust, and then click Next.
- Click Finish.
- Restart Visual Studio.