There is a known issue where you can get into this state if settings.settings file ever gets deleted. The fix for this is to open the Settings.settings file (just double-click it). You should see entries similar to the following for you dynamic urls.
Name Type Scope Value
MyApp_localhost_Service (Web Service URL) User http://localhost:2305/WebSite8/Service.asmx
Notice the type field - it needs to be set to "(WebService URL)" - one of the choices in type dropdown. Most likely it is set to be of type String and this causes the error.
Can you try this? We are looking at getting this fixed for SP1 of Visual Studio (it is an issue in the core VS code base so WAP cannot fix it directly.)
Bill Hiebert
Visual Studio Web Tools