Can the MVVM-Light ViewModelLocator be used in nested ViewModels?

Question

The Visual Studio 2008 Designer doesn't seem to like UserControls that reference the MVVM-Light ViewModelLocator. I get an error message like:

Could not create an instance of type 'MyUserControl'.

For example, the following XAML will cause this behavior if MyUserControl uses the ViewModelLocator to establish its DataContext.

<Page x:Class="MyProject.Views.MainView"
xmlns="http://schemas.microsoft.com/winfx/2006/xaml/presentation"
xmlns:x="http://schemas.microsoft.com/winfx/2006/xaml"
xmlns:Views="clr-namespace:MyProject.Views"
>
    <Grid>
        <Views:MyUserControl/>
    </Grid>
</Page>

MyUserControl is extremely simple:

<UserControl x:Class="MyProject.Views.MyUserControl"
         xmlns="http://schemas.microsoft.com/winfx/2006/xaml/presentation"
         xmlns:x="http://schemas.microsoft.com/winfx/2006/xaml"
         DataContext="{Binding MyNestedViewModel, Source={StaticResource Locator}}"
>
<Grid>
    <TextBlock>Hello</TextBlock>
</Grid>
</UserControl>

And the "MyNestedViewModel" property simply instantiates an instance of the MyNestedViewModel class, which has absolutely no code in its default constructor.

Two questions:

1. Am I using the ViewModelLocator correctly? That is, can it be used in nested views or is it only meant for top-level Views?
2. Could this just be another bug in Cider, the Visual Studio 2008 designer?

Note that everything works perfectly at runtime. I only have problems at design time. But I hate coding XAML blind.