I recently updated a Visual Studio 2005 project with WCF service references to Visual Studio 2008. After some interface updates, I needed to update the service references. After some rummaging around for the 'Update Service Reference' context menu and spending some time googling the scenario, I finally realized that the organization and implementation of WCF client handling via the Visual Studio 2005 extensions is different than that in Visual Studio 2008. The result?
You have to re-generate any service references for you to be able to continue to update/edit in Visual Studio 2008.
Fantastic!