Include .NET framework in nLite iso

By default, Windows 7 and Windows Server 2008 comes with .net 2.0 and .net 3.5. Remember even though you have .net framework 3.5 the CLR version is 2.0. There is no CLR v3.5. You can always host .net 3.5 related applications on the server where your web.config file will be referencing the necessary namespaces.

From the article .NET Framework 3.5 Architecture

The architecture of the .NET Framework version 3.5 and 3.5 Service Pack 1 (SP1) builds upon the earlier versions of the .NET Framework.

An application uses the same assemblies regardless of whether it targets the .NET Framework version 2.0, 3.0, 3.5, or the Client Profile, and regardless of whether the assemblies have been updated on a user's computer. For example, an application that uses Windows Presentation Foundation (WPF) and targets the .NET Framework 3.0 uses the same instance of the mscorlib assembly as an application that uses Windows Forms and targets the .NET Framework 2.0.

No, .NET Framework 2.0 was not included with Windows XP SP3.

See here:

Windows XP Home and Professional SP3 includes the MSI-based
.NET Framework 1.1 + SP1 in the Additional Components folder
on the installation CD.  It is not an OS component on this OS.