Recently, when I got home from our 2008 launch event, where I had presented on device development with VS2008 in front of ~350 people, and I tried to open my demo projects, I got a nasty error whenever I opened an existing device project, or tried to create a new one. Don't remember exactly what VS complained about exactly, but Device Emulator Manager, e.g., said "Cannot find the datastore. Error 0xnnnnnnnn" (don't remember the error #, either). Repairing Visual Studio 2008 did not fix this. Bummer!
Fortunately I am a skilled user of internet search engines, and my favorite one came up with a solution that can be found here. Basically you have to delete the content in
\Documents and Settings\<localuser>\Local Settings\Application Data\Microsoft\CoreCon (pre-Vista) or
\Users\<localuser>\AppData\Local\Microsoft\CoreCon (on Vista)
and maybe also
\Documents and Settings\<localuser>\Local Settings\Application Data\Microsoft\Device Emulator (pre-Vista) or
\Users\<localuser>\AppData\Roaming\Microsoft\Device Emulator (on Vista)
or, if you try a more sophisticated approach, delete files selectively in those folders, and find out which ones cause the error. (If you delete everything, you'll lose all pre-configured emulator images, of course.)
This solved my problem.