I'm guessing that you are using Visual Studio 2005 (or possibly earlier) - and that implies .NET 2 (I think). You need .NET 3.5 SP1 in order to support SQL Server 2008 (it's in the release notes:
http://www.microsoft.com/en-us/download/details.aspx?id=10986[
^])
I suspect that you are going to have to bite the bullet and upgrade your Visual studio to a more modern version: 2008 as a minimum, but probably 2010 would be better if you can't run to 2012 / 2013.
Remember that Microsoft do Express versions of VS so it should be possible to download VS Express 2013 and try your code for free before you have to shell out any money.