This might be related to what files you have open in the saved solution state. I ran into this problem in VS2010 and found that if I close the solution while an .xml file was open in the editor, then on the subsequent re-open of the solution, the project containing that .xml file would get this <SubType>Designer</SubType> line added. If I close the solution without that file open, though, it does not try to add that line on the following re-open.