OK, I found it (with some excellent help from Joe Stagner).
The client's network guys set up everyone's My Documents on shared network drives. VS2008 loves using My Documents so my projects are all on the shared drive. I created a new project on my local c: drive, and voila, it worked!
FYI I also have run into issues of too many network connections when I have more than one VS2008 project open at the same time. It would seem that VS2008 and network drives do not play together very well. I'm moving all my projects to the C: drive.
Thanks,
Ross