I too have had problems installing the recent service pack of Visual Studio (VS) that includes the recent SQL Server Compact Edition (SQLCe) binaries. Before this problem you have to ensure and check whether you've installed any CTPs they must be uninstalled
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Using BIDS any user cannot create folders under the project like VS2005 does. As usual u ser can create more than one query folder, and the root folder can create child folders. The only way to recover this problem is to edit the XML file that is created
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