Using freshly installed Windows Azure Tools with VS10 you may encounter following error:
Unable to start Development Storage. Failed to start Development Storage: the SQL Server instance ‘localhost\SQLEXPRESS’ could not be found. Please configure the SQL Server instance for Development Storage using the ‘DSInit’ utility in the Windows Azure SDK.
That means, the Development Storage wasn’t initiated properly on the box you are using. To init the storage you have to use the DSInit utility from Windows Azure SDK – to find in:
C:\Program Files\Windows Azure SDK\v1.2\bin\devstore
If you have a complete SQL 2008 installation on your computer, you may encounter following error after DSInit starts:
Failed to create database 'DevelopmentStorageDb20090919' : A network-related or instance-specific error occurred while establishing a connection to SQL Server. The server was not found or was not accessible. Verify that the instance name is correct and that SQL Server is configured to allow remote connections. (provider: SQL Network Interfaces, error: 26 - Error Locating Server/Instance Specified)
Unfortunately, DSInit tries to create Development Storage databases in a SQLEXPRESS instance, that is not here. So, your task is to specify the SQL instance to use for Development Storage database creation.
c:\Program Files\Windows Azure SDK\v1.2\bin\devstore>dsinit /sqlInstance:. /forceCreate
UPD: using /silent switch in the command line will suppress the progress and confirmation dialog, so you do not have to confirm end of process.