And then came the revelation... looking a couple of lines down I found that the real error was being masked - looking at the detailed logs we can see the real culprit:
C:\Program Files (x86)\MSBuild\Microsoft\VisualStudio\LightSwitch\v1.0\Microsoft.LightSwitch.targets(1257,9): error MSB4018: The "UnpackExtensionsToProjectDir" task failed unexpectedly.<SNIP>
[C:\Builds\4\MyApp\Trunk\Sources\Authentication\MyApp.LightswitchApp\MyApp.LightswitchApp.lsproj]C:\Program Files (x86)\MSBuild\Microsoft\VisualStudio\LightSwitch\v1.0\Microsoft.LightSwitch.targets(1257,9): error MSB4018: at Microsoft.LightSwitch.ExtensionsReader.ExtensionInformationService.ExtensionInformation.LSPKGPackage.ExtensionDirectoryDeletionFailedAction(IServiceProvider serviceProvider, String directory) [C:\Builds\4\MyApp\Trunk\Sources\Authentication\MyApp.LightswitchApp\MyApp.LightswitchApp.lsproj]<SNIP>
[C:\Builds\4\MyApp\Trunk\Sources\Authentication\MyApp.LightswitchApp\MyApp.LightswitchApp.lsproj]Done Building Project "C:\Builds\4\MyApp\Trunk\Sources\Authentication\MyApp.LightswitchApp\MyApp.LightswitchApp.lsproj" (default targets) -- FAILED.Done Building Project "C:\Builds\4\MyApp\Trunk\Sources\Authentication\MyApp.LightswitchApp\MyApp.LightswitchApp.lsproj.metaproj" (default targets) -- FAILED.
By looking at the Microsoft.Lightswitch.targets file, I found that the actual error was that the build process couldn't delete the _Pvt_Extensions directory.
A quick check showed that that particular directory had been added to TFS source control - removing it and the deaded "UnpackExtensionsToProjectDir" error was finally vanquished. (OK - there were a couple of other build errors, but they were easily fixed).
So now I have a green tick beside my Lightswitch application in TFS Build Explorer - WIN!
Tomorrow, my next challenge - getting the thing packaged for MSDeploy deployment.