The downside presumably is that the setup.exe alone is no longer sufficient for installation - instead users have to download the whole set of deployment files ?
If that's a concern, you might consider adding a post-build step to bundle the files from your deployment folder into a single zip/7z/rar file. Or, as I originally suggested, create a separate Setup project that does not use ClickOnce technology. There's no real drawback to having multiple Setup projects in your VS solution...just specify custom build configurations so that you're only compiling the Setup projects when appropriate.
I think it's a fair assumption that 99% of people who play arma are going to have some kind of internet connectivity
True but sometimes it's nice not to have to be connected to the internet while working on stuff. Even though I'm an internet junkie (everybody says "Hiiiiiiiiiiiiiiiiiiiiiiiii, zonker!"), I do like to work offline sometimes while scripting. Also, if I don't have a net connection, I don't want to wait for an app to try to find updates online...fail to connect...and then handle the error...and eventually start up. I want instant gratification and I want it NOW!
I use ClickOnce for some applications that I write at work...it's a wonderful way to ensure that my users are working with the most up-to-date build of the app. I wouldn't recommend it as a sole option for deploying an app to a diverse set of users (i.e., across multiple corporate domains, across the internet, etc.), though. It forces you into a specific publishing framework and, as you've seen, it's a pain in the butt if you need to do anything outside the "standard" approach.
That said, there's no need to really for you to get your hands dirty with makefiles and the low-level stuff like that. A standard Setup project is simple enough if you have a basic configuration. Even pre- & post-build steps be configured in the IDE without much trouble but if not you can still get away with tweaking a few items in the underlying Setup project's XML-based configuration file. And given what you've accomplished with tools like Squint and RptMon, I seriously doubt that would be much trouble for you at all.
Regardless, nice job with the various tools you've created. Definitely some neat stuff!