Turns out there's a bug in the October CTP of the Windows Azure SDK having to do with user names that contain spaces. It looks like the right folks are on it at this point and it will hopefully get addressed in our next release (still figuring out our release frequency story). The best way to get around it and have everything work is to actually run under a user name without spaces. But if that's really not an option for you, you can try the following:

  1. Open up an elevated command prompt.
  2. Navigate to the directory where the Windows Azure SDK is installed (e.g., C:\Program Files\Windows Azure SDK).
  3. CD your way into .\v1.0\bin\devfabric.
  4. Start the dfservice.exe process as follows 'dfservice -sp <path_without_spaces>' where you replace the last argument with a directory that doesn't contain any spaces.

Next time the Development Fabric starts up (either from running your app from Visual Studio) or launching csrun.exe from the command-line, things will work reasonably but there will be problems around clean-up logic.