The Visual Studio project template that is part of the SDK requires that the Web Application Projects update for VS 2005 is installed.  This udpate is not supported by the Express edition of Visual Web Developer.  Also, the current template installer doesn't yet support VS 2005 SP1.

As a quick fix, I've put up a sample file based web project that will work in express and all version of VS.  Until we fix the installer, this can be used as a starting point for "WPF/E" projects.

The sample can be downlaoded from here