It seems Visual C++ 2005 uses a new deployment model for windows apps. It uses the manifest file to find the C Runtime libraries. The CRT libraries were installed under
C:\WINDOWS\WinSxS\x86_Microsoft.VC80.CRT_1fc8b3b9a1e18e3b_8.0.50727.* when I installed the free version of Visual C++.
The directory name has the Processor Architecture, publicKeyToken, version number. Also, the manifest doesnt seem to mind as long as the version number matches till 8.0.50
Here is the link to the msdn article which has details.