LocalDB is a feature of Denali CTP3 SQL Server Express. While you can connect to LocalDB, a file based database file, the designer data designer which is invoked from Data | Add New shown below does not support creating objects in SQL Server versions beyond SQL Server 2008 within the VS 2010.
It is interesting however; one can create database objects in SQL Server Express 2011 (presently Denali CTP3 Express) as seen in this image.
One can conclude therefore that VS 2010 SP1 needs some kind of upgrade before it can provide UI support for designing database objects in LocalDB.
Or
The LocalDB has to be created directly in the application that uses the application instance of this database and not via the the connection in the Server Explorer.
Note added 9/14/2011
The upgrade that is needed is to install SSDT with the present code name 'JUNEAU'
It is interesting however; one can create database objects in SQL Server Express 2011 (presently Denali CTP3 Express) as seen in this image.
One can conclude therefore that VS 2010 SP1 needs some kind of upgrade before it can provide UI support for designing database objects in LocalDB.
Or
The LocalDB has to be created directly in the application that uses the application instance of this database and not via the the connection in the Server Explorer.
Note added 9/14/2011
The upgrade that is needed is to install SSDT with the present code name 'JUNEAU'
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