Microsoft correctly decided that their design surface in Visual Studio 2008 was crap and made it read only. They'll be rectifying this situation in Visual Studio 2010 and it seems to work just fine there as DeanMc has stated.

Since it hasn't been stated in the thread you can drag controls directly into your Xaml which can be very helpful in getting the base markup started and automatically adds missing xmlns entries. (It adds them to the beginning and doesn't put a line break in but that's easily fixed.)