There is an issue in SP1 for Visual Studio 2008. If you have a partial class with Using statement at the top of the file for a Linq-To-SQL Data Classes context object. You will get above error. Visual Studio will delete the corresponding “.designer.cs” file for your data context and nothing will be compiled.
To solve this issue, you may have to move “Using” statements inside namespace declaration. This is a workaround provided by Microsoft.