I don't think you're alone in hitting this problem. I hit it today with VS2008SP1 + SL2 trying to create a Service Reference for an ADO.NET Data Service. First time I've hit the error.
Others have detailed similar experiences to reach this error:
http://silverlight.net/forums/t/87535.aspx
http://silverlight.net/forums/t/56629.aspx
It's not entirely clear at this point if the issue is with the IDE "Add Service Reference" dialog or something specific in the services causing this error. In my case, however, my code still worked despite the error message. I simply passed the URL to my service in the constructor of my DataService proxy client, like this:
var context = new DataServiceContext(new Uri("NorthwindDataService.svc", UriKind.Relative));
Summary point: Just because you hit this error in the IDE, your service reference may still work. Give it a try and let us know if you're seeing errors at run time.
Hope that helps.
[UPDATE] Based on some other advice I've found and tested, you can also try:
- deleting your Service Reference
- deleting your ServiceReferences.ClientConfig file
- saving your solution
- and then closing and reopening it in VS.
The simple act of closing and reopening your project has been shown to fix several problems with the Add Service wizard. Re-run the Add Service Ref wizard and you may have better luck. I personally tested this solution on a project today and can confirm it works. Hope that adds extra help to finding your solution.