1) I reinstalled Microsoft .Net 2.0 and Visual Web Developer 2005 Express Edition.
It didn't help.
2)I did the following:
in the command prompt I typed:
C:\>cd WINDOWS\Microsoft.NET\Framework\v2.0.50727
C:\WINDOWS\Microsoft.NET\Framework\v2.0.50727>aspnet_regiis –i
C:\WINDOWS\Microsoft.NET\Framework\v2.0.50727>iisreset
It worked! The message "unable to connect to.." is gone!
P.S. Now, I'm not so sure.
It worked on very simple site, but when I tried to run a Personal Web Site, created by Visual Web Developer, it gave me the same message "unable to connect...". And, by the way, you have to do the two steps (aspnet_regiis -i, and iisreset) every time before starting Visual Web Developer.