After I had built my web part I clicked to debug and was presented with the following error:
To get past this error I used the following two blog posts:
It seems that the error is because the account running the application pool for VseWSS web application in IIS does not have the correct permissions. I was on a domain controller so simply gave the account domain admin permissions. This however did not fix the error and I ended up giving the account full control to the folder itself!
When I tried to deploy again I did not get the above error but now a different one (See screenshot below)! I cannot find any more details on this error and the folders specified in the error message do not even exist. I think im going to go back to using WSPBuilder from now on as it seems the VseWSS extensions are still quite buggy.
If anyone has any more details on the above error and how to fix it then please let me know