I also logged a support ticket for this: 167734
But maybe somebody other on this forum will get some useful information on this problem:
I found some strange behaviour in my Silverlight Project.
I upgraded to the Telerik RC1 controls (Q3 2008).
Telerik.Windows.Controls, Telerik.Windows.Controls.Input and Telerik.Windows.Controls.Navigation are present in the project.
When I try to Update a Service Reference or add a new Service Reference (to a WCF service), I get the following error in Visual Studio:
"Error 7 Custom tool error: Failed to generate code for the service reference 'test'. Please check other error and warning messages for details."
If I remove the references to the Telerik Controls, I can successfully update or add service references ...
I don't know if this has something to do with the presence of the Telerik Controls in the project. (I don't have any onther third party references to simulate this behaviour)
With Telerik Silverlight RC0 and MS Silverlight 2.0 RC I didn't have this problem.