IT WORKS!
I've not had time to actually work on this much due to NIWeek, but I've just tried it out on a clean machine and must ask your forgiveness. The problem is in the VS.NET project file used to build the example.
I noticed that the dependency list for the DLL (lsb) included the debug version of the VC8 runtime. When I looked at the VS.NET project settings, I saw that it was configured to link against the multi-threaded DEBUG DLL even in release build. ARGH.
I changed the release project to just the multi-threaded DLL, rebuilt the entire project in release mode and took that over to the clean machine. I had to relink and save the VI for the new LSB file, but after that everything worked fine. I've attached that new build.
NOTE: It does require that you install the VC RT components as I mentioned earlier, but it does not require the .NET framework to be installed.
I understand if you don't have time to try this out, and you were only helping us solve the problem for others (which I think this has done, clean machine and all), but let me know if you do run it.