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Well, your path only has 161 chars with space, now considering the MAX_PATH is a limitation from Explorer and not from Win32 subsystem, I doubt it for the problem. still If it is MAX_PATH (256 char) problem than you can try installing ThinApp at c:\VM or similar small paths, you can also reduce the name of project to reduce it further.
Or you can run log monitor and generate logs for setup capture and snapshot.exe and see what is going wrong in the log files.