I've run into this problem as well. The solution I implemented in my build software was to download the source from VSS into the solution root, and create virtual mappings to the latest version from VSS. The only trick when using devenv.exe to do the build is that Visual Studio caches the locations and files in the web under the C:\Documents and Settings\<current user>\VSWebCache folder which needs to be emptied before every build.
This solution works perfectly in that case.
Another option is to use NAnt to automate your integration builds, which has a <solution> build task that lets you map web projects to a local directory for builds. NAnt does *not* invoke devenv.exe to perform a build, and parses .sln and .*proj files itself.
I am so far unaware as to how the Microsoft.Sdc or MSBuild tools can handle this currently.
I've had big problems with this too. Very nice to see this workaround. Thanks!
I've been using this method for years now. It works very well. Visual Studio .NET, when it comes to Web applications, is simply unacceptable for large-scale projects.
One problem with this approche is that tools list WSE setting tools will reference this new project as a client project instead of service project and will fail to update the web.config as they will try to update the app.config.