After changing the output directory of a visual studio project it started to fail to build with an error very much like:
C:\\Program Files\\Microsoft Visu
see msdn for the options to sgen.exe [you have the command line, you can play with it manually... delete your .XmlSerializers.dll or use /force though]
Today I also ran across how to more manually specify the sgen options. I wanted this to not use the /proxy switch, but it appears it can let you specify the output directory. I don't know enough about msbuild to make it awesome, but this should get you started [open your .csproj/.vbproj in your non-visual studio editor of choice, look at the bottom and you should be able to figure out how/where this goes]
[the below code has had UseProxyTypes set to true for your convenience]