I cant help you with the above but, after I had installed SP1 I had problems with connectionstring as well, the tableadapter, dataset designer could not find the connectionstrings anymore (which works perfectly fine on a machine without SP1) , reading you post I started thinking that a new bug got introduced in SP1 or something else got messed up.
This seems to happen only to projects that were created without SP1 and SP1 added afterwards,
at least in the case of tableadapters, If you start a brand new solution/project I was not able to recreate the problem