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One of new feature in SharePoint 2010 is Sandboxed Solution. The ideas is to create solution and deploying them in a way that you can trust will not damage or change SharePoint farm. (http://msdn.microsoft.com/en-us/magazine/ee335711.aspx)

Sandboxed Solution is aimed for isolation between one solution to another; which implies that you can not include anything inside the hive folder. If you try to include TemplateFile, Layouts or Images in package, VS2010 will raise an error stating “The deployment type …… is not compatible with a Package in a Sandboxed Solution”.  And it means you have to think about the solution architecture again and refine the rules.

For example, you may consider custom document library to store the images for your solution, etc.

However, sometimes we need to get rid from sandboxed solution. Then we need to change the project type into non-sandboxed solution. To change project type to non-sandboxed solution,

1. Click on project property
2. Set Sandboxed Solution = False.

Now continue your work.