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From WiX Wiki at MindCapers

Error Messages

ICE18: KeyPath for component: <component_name> is a Directory: <dir_name>. The directory/component pair must be listed in the CreateFolders table.

Explanation

Your component is in a directory which doesn't have any files in it, so the validation is worried that the directory may not be created.

How to Fix

Putting in a <CreateFolder/> tag in the component should clear the ICE error or you could move the component to another directory

    
    <Component Id='StartMenu_Shortcut' Guid='valid guid'>
        <Condition>CreateStartMenuShortcut</Condition>
        <RegistryValue Root='HKCU' 
            Key='SOFTWARE\MyCompany\MyApp' 
            Type='string' 
            Value='StartMenuFolder' 
            KeyPath='yes' />                                    
        <CreateFolder/>
        <Shortcut Id='StartMenu_Shortcut' 
            Name='MyApp'
            Directory='StartMenuFolder'                  
            Icon='MyApp.exe' 
            IconIndex='0'
            WorkingDirectory='MyAppDir'
            Advertise='yes' />
    </Component>