If your VS project contains any spaces in its path, the call out to mt.exe fails.

[williamAtXojo]

xaml-islands/build/Unpackaged.targets

Line 33 in bf60a7f

<Exec Command="mt.exe -winmd:%(_UnpackagedWin32WinmdManifest.WinMDPath) -dll:%(_UnpackagedWin32WinmdManifest.Implementation) -out:%(_UnpackagedWin32WinmdManifest.Identity) -nologo" />

This should be updated to support spaces in the path by using quotes:
<Exec Command="mt.exe -winmd:%22%(_UnpackagedWin32WinmdManifest.WinMDPath)%22 -dll:%22%(_UnpackagedWin32WinmdManifest.Implementation)%22 -out:%22%(_UnpackagedWin32WinmdManifest.Identity)%22 -nologo" />