I came across this error when trying to create a new web cloud service using Visual Studio 2008 after installing the latest Azure SDK
"Invalid URI: The format of the URI could not be determined"
A solution was available in this MSDN forum thread
I had to create a "Startup" folder on my machine as suggested
This not only fixed this problem but also fixed another problem that I had with VS2008. A month back VS2008 started showing this security warning even when creating new projects:
"This project has been customized and could present a security risk by executing custom build steps.."