I encountered this error after upgrading a web site to VS2005 and converting it to a Web Application Project. the project built without problems, it was just the designer kept throwing up errors in the error list which was very annoying.
Thanks to 'ratureus' for his post on http://forums.asp.net/thread/1212425.aspx
- Close VS 2005
- delete all files in C:\Documents and
- Restart VS 2005
this worked for me.