How it all started

PRB: "The specified Web server is not running ASP.NET version 1.1" error message when you create an ASP.NET 1.1 application and you have both ASP.NET 1.1 and ASP.NET 1.0 installed

This is error message which lead me to what ever happened yesterday.

Right now, it allows me to create a ASP.NET Web Service project under VB.NET projects. But then I get this:
ASP.NET Version Mismatch

Visual studio .NET has detected that the Web server is running ASP.NET 1.0....

and then asks me whether I want to upgrade it to ASP.NET 1.1 or make it compatible with 1.0.