Working through the last revision of the SDK I found it was really hard to discern the development environment for successfully developing a Windows Media Center application -- mainly because you can't read what we write before installing the SDK...!
So, let me take a moment to give you what I consider the bare minimum install set for a development machine in the order they should be installed.
Windows Vista Home Premium or Windows Vista Ultimate
Visual C# 2005 Express Edition
Visual C# 2005 Express Edition SP1
Visual Studio 2005 Service Pack 1 Update for Windows Vista
Visual C# 2008 Express Edition
Windows Media Center Software Development Kit 5.3
I've put these links over on the navigation bar at http://blog.mediacentersandbox.com as well for future reference.