If you do not have SQL Server Express installed then you cannot use an .mdf file from your App_Data folder. You can test if you have SQL Server Express installed by checking if you have a SQL Server instance called "SQLEXPRESS" installed on your machine.

You can also connect to a full SQL Server instance using the Server tab. Import the .mdf file into your SS, create a new LINQ to SQL model (via Add new Item), and then drop tables from your server onto the designer surface.