When I opened my settings file, it didn't tell me that new values from  web.config will be added.

I also tried what you said but when I try to update the web reference I get the error

"The custom tool 'MSDiscoCodeGenerator' failed. Object reference not set to an instance of an object."

I do get a new Settings.Settings file but it only contains the following

<?xml version='1.0' encoding='utf-8'?>
<SettingsFile xmlns="http://schemas.microsoft.com/VisualStudio/2004/01/settings" CurrentProfile="(Default)">
  <Profiles>
    <Profile Name="(Default)" />
  </Profiles>
</SettingsFile>

I

Many thanks for looking at this for me.
Richard.