What is the right way to set shadow copying for the default AppDomain

As far as I know these methods only work on .NET Framework version 1.1. For all later versions you cannot enable shadow-copying on the main AppDomain. You need to create a new AppDomain and set-it up appropriately. A simple approach is to create a loader application that simply:

• Creates a new AppDomain with shadow-copy enabled. For this you will have to use one of the overloads of AppDomain.CreateDomain that take an AppDomainSetup parameter.
• Executes your main application using the AppDomain.ExecuteAssembly method.

A good starting point can be found in the Shadow Copying of Applications CodeProject article. The following program is taken from the article with a slight modification (the cache path is not specified:

using System;
using System.IO;

namespace Loader
{
    static class Program
    {
        [LoaderOptimization(LoaderOptimization.MultiDomainHost)]
        [STAThread]
        static void Main()
        {
            /* Enable shadow copying */

            // Get the startup path. Both assemblies (Loader and
            // MyApplication) reside in the same directory:
            string startupPath = Path.GetDirectoryName(
                System.Reflection.Assembly
                .GetExecutingAssembly().Location);

            string configFile = Path.Combine(
                startupPath,
                "MyApplication.exe.config");
            string assembly = Path.Combine(
                startupPath,
                "MyApplication.exe");

            // Create the setup for the new domain:
            AppDomainSetup setup = new AppDomainSetup();
            setup.ApplicationName = "MyApplication";
            setup.ShadowCopyFiles = "true"; // note: it isn't a bool
            setup.ConfigurationFile = configFile;

            // Create the application domain. The evidence of this
            // running assembly is used for the new domain:
            AppDomain domain = AppDomain.CreateDomain(
                "MyApplication",
                AppDomain.CurrentDomain.Evidence,
                setup);

            // Start MyApplication by executing the assembly:
            domain.ExecuteAssembly(assembly);

            // After the MyApplication has finished clean up:
            AppDomain.Unload(domain);
        }
    }
}

You will have to:

• Replace MyApplication.exe with the name of your executable assembly.
• Replace MyApplication with the name of apllication.
• Replace MyApplication.exe.config with the name of you application's configuration file. If you do not have one then you do not need to set this.

You do not need to create a separate application. You can just spawn sub-domain in your main method or call the actual main method based on AppDomain.CurrentDomain.IsDefaultAppDomain() value:

public static void Main(string[] args)
{
    if (AppDomain.CurrentDomain.IsDefaultAppDomain())
    {
        // Loader
        var entryPoint = System.Reflection.Assembly
            .GetExecutingAssembly();

        var applicationName = entryPoint.GetName().Name;
        // Create the setup for the new domain:
        var setup = new AppDomainSetup();
        setup.ApplicationName = applicationName;
        setup.ShadowCopyFiles = "true"; // note: it isn't a bool

        // Create the application domain. The evidence of this
        // running assembly is used for the new domain:
        AppDomain domain = AppDomain.CreateDomain(
           applicationName,
            AppDomain.CurrentDomain.Evidence,
            setup);

        try
        {
            // Start MyApplication by executing the assembly:
            domain.ExecuteAssembly(entryPoint.Location, args);
        }
        finally
        {
            // After the MyApplication has finished clean up:
            AppDomain.Unload(domain);
        }
    }
    else
    {
        // Main
        ActualMain(args);
    }
}

public static int ActualMain(string[] args)
{
     //Hello-world!
}