I’m not sure why this is so difficult, probably because of intellisense support – but if you want to change the target framework for a smart device project, you can’t change the “Framework Version” property in VS2008 because it is greyed out.
Instead, you have to select the project in the solution explorer, and then from the menubar, go to Project | Upgrade Project. Beware, it says it is not backwards compatible, so make sure you are ready to do this. This also means you need to be prepared to bootstrap your devices with the proper compact framework version.
Since bootstrapping mc9090′s is notoriously difficult (I’ve never had a .cpy file actually work no matter how many ways I’ve tried it) my suggestion is to create a small bootstrap program which is run on a cold boot.