Visual Studio 2008 did not natively support connecting to the SQL Server 2008 (As of this writing the Nov 2007 CTP was used). Although you would test the connectivity to be positive, it would not reveal the catalog as seen in this message.
A work around is to use an ODBC connection as shown in the article. The article also describes a possible bug in the Query Designer tool.
Read this and many others at this site:
Creating a Web Page for Displaying Data from SQL Server 2008