<p>I have an application written using VS2005 in C# targeting the Compact Framework 2.0 SP2. As part of the solution, I have CAB deploy project which deploys to the device without a problem. What I can't do is create a shortcut to my application on the devices desktop.</p>

<p>I have spent several hours reading various bits of documentation (why is the search at the MSDN site so bad?), followed the instructions but no joy. </p>

<p>What I've done is:</p>

<ul>
<li>Add the "Windows Folder" node to the File System</li>
<li>Created a folder underneath that named "Desktop"</li>
<li>Created a shortcut to the Applications Primary Output and placed that in the "Desktop" folder</li>
</ul>

<p>What am I missing?</p>

I assume that you're working with a "Smart Device CAB Project"?  I don't think this project creates shortcuts in the correct manner for Windows CE 4.2.  I think you can download an SDK from Microsoft that after installation will show you something like "Windows CE CAB Project" as a project option.
I think you can do this manually, though.  A Windows CE shortcut is a file with a *.lnk extension, so if you want a shortcut labeled "My Application", create a text file on your PC named "My Application.lnk".  The file's contents should be:
46#\Program Files\My
  Application\MyApplication.exe (the # should be the full path length)
or whatever full path your application has on the Windows CE device.
In your CAB project, continue with adding the "Windows" folder and then the "Desktop" folder as you were.  In the Desktop folder, right-click and add the LNK file that you created.  You may have to soft-reset the device in order to have the shortcut show up after installation.