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I have consistently used this method to get around this bug instead of rebuilding my setup projects. This applies to both merge module projects AND setup projects. Manually remove the data in the Hierarchy and Files section of the project files.

1. Open .VDPROJ file

2. Find the "Hierarchy" section. Delete everything so the section looks like this:
    "Hierarchy"
    {
    }

3. Find the "File" section. Delete everything so the section looks like this:
        "File"
        {
        }

4. Reload the project

5. Rebuild the project.

6. You may need to re-add project outputs if missing something

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