From a Visual Studio 2005 Visual Basic application I published a Windows application with Crystal Reports as "Online Only" install mode. When installing the application from the client's system the Crystal Reports installed, but the rest of the application would not install and caused the error with a message box which said: Cannot continue. The application is improperly formatted. Contact the application vendor for assistance.
I called Microsoft with one of our MSDN calls and he gave me the workaround to this bug:
From the publish screen:
Click offline application.
Uncheck Specify minimum required version for application
Change back to online application.
(The Update button should be disabled.)
This worked. This is definely a bug and the Microsoft technician agreed. If the update button is disabled when the application is in Online Only install mode, the settings within update shouldn't even be checked.