You've correctly figured out the reason behind this. An Icenium project has build settings (right click on workspace -> Build Settings) and when the application is build in Debug (default), it is unpacked on the device's SD card. This is necessary in order for LiveSync to work, because the files of the application are sand-boxed and we can't modify them unless we can access them. Once the application is built in Release mode (for publishing) the files would not be on the SD card.
P.S. Bare in mind that once you change the build settings to Release mode LiveSync won't work.
All the best,
the Telerik team
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