I don't know why it is needed.  It means you can never make SYSTEM:WINDOWS programs with libtinyptc_ext unless they don't use any built-in functions as it stops the runtime being initialized (hence why your programs just drop out).
You're stuck doing SYSTEM:CONSOLE, not that that's a bad thing - you just end up with a cmd window, everything else is the same.
SYSTEM:WINDOWSCE is Windows CE, a cut down embedded Windows for phones and PDAs.
<edit>Just found a way round it.
Set it back to SYSTEM:WINDOWS
Set it back to Multithreaded
Set the option rbz mentioned (entry point) to mainCRTStartup
Use main() instead of WinMain in your program.
That will force it to init the runtime and bypass the libtinyptc_ext wierdness.
<edit2>attached is what I think is your project working with SYSTEM:WINDOWS
Jim