If you want to connect to SQL Azure from SQL Management Studio follow the steps below:

1. Procure an activation code for SQL Azure (Since it is in CTP now).
2. Go to http://lx.azure.microsoft.com/ and you can access your SQL Azure from the portal.
3. To access the SQL Azure from SQL management studio, open the SQL Management studio 2008
4. Cancel the login dialog box that would pop up
5. Click on 'New Query'
6. Choose Database engine
7. Enter the FQDN of the SQL Azure server. This information can be obtained from the SQL Azure portal. (no prefix, no suffix, no protocol should be appended).
8. Enter the login name (<login_name>@servername)
9. Enter password
10. Click on Options
11. Enter the database name (master or another other database if you have created one).
12. Click on connect to connect

It should be successful by now.

If you are not successful, check the following:

1. Check the database name, user name, password and Server name
2. Check the firewall settings. (Your firewall should allow 1433)

In my experience, few people had connecting issues connecting to SQL Azure from SQL management studio 2008 and majority of the issues were because of the firewall blocking 1433.

if you are in your office and if you are facing issues connecting to SQL Azure from SQL management studio 2008, it is worthwhile to check the firewall settings or check with the network administrator if the port 1433 is allowed in your corporate firewall.

Feel free to email me or leave a comment if you are facing issues.