One thing we neglected to mention in the release notes is that you can now load up roots other than Window and Grid in the August CTP. The list I believe is anything deriving from Panel, Page, UserControl and ContentControl.
So if you have the latest installed - try replacing your window1.xaml with this:
If you want to drag and drop into it, replace the contents with a Grid. For button you may have to size the grid in code, as the button layout sizes grid to zero.
More interestingly, you can now design user controls.