I'm I was having the same issue running from the built in web server using visual studio 2008/SQLExpress and XP Pro.
Here's the steps that got things going for me.
1) Save the solution file (I created a dir in the default VS projects directory to save the sln file in)
2) Completely exit out of VS2008
3) Restart VS2008 and open the saved solution.
4) Build Solution
One thing I did notice when it was failing and hanging up the cassinni web dev exe was that the page requested was http://www.localhost.com:portnum/xxx.
Typically the address for any VS web project opens as http://localhost:portnum/xxx
Not sure if that last bit helps anyone or not.
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