Digging through the Castle source code look what I found in the "HowToBuild" file (note the last line):

Possible problem with 3.5
=========================
if you get the following error:
"The SDK for the 'net-3.5' framework is not available or not configured."
then you probably need to fix the sdkInstallRoot in your nant.exe.config file to point to the correct location in the registry
See the following article for more info:
http://www.timbarcz.com/blog/NantSetupForVisualStudio2008AndNet35.aspx

Looking through the file's history I can see that Ken Egozi is a pretty smart man. *wink* *wink*