I've downloaded Microsoft Advertising SDK for WP7, added reference to Windows Phone Game project, and now when I'm trying to run the game I get this in Output:

'taskhost.exe' (Managed): Loaded 'mscorlib.dll'
A first chance exception of type 'System.IO.FileLoadException' occurred in mscorlib.dll
The thread '<No Name>' (0xd4b004e) has exited with code 0 (0x0).
The program '[229048418] taskhost.exe: Managed' has exited with code 0 (0x0).


If the reference is removed, game launches normally again.

What might be the possible solution to fix this?

It's possible you won't be able to trap the exception if if occurs too deeply in code that belongs to the CLR loader, in which case you may need to use WinDbg or load the SOS.dll directly into VS to trap and print the exception (look into sxe clr in WinDbg and !pe from SOS).