This was driving me crazy the other day… I tried everything, reconfiguring the services, installing updates I didn't need, uninstalling SharePoint Designer and installing it again, 32 bit, 64 bit, what ever you want.
Every time i opened SharePoint designer and tried to add an external content type, I got this error:
Then I realized I was doing 2 things that might be the issue:
1. I was running 64 bit of SharePoint designer
2. I was running on my SharePoint Server itself, in a dev machine on CloudShare
So, I went ahead and installed SharePoint designer 32 bit on my client machine – and what do you know, it was working.
Now, the question is what was the problem – running on the server, or running the 64 bit version?
So, I uninstalled the 64 bit version and installed the 32 bit version just out of curiosity…
And what do you know? Same error message… It appears that this is not working when running on the server itself.
It might be specific to my configuration – but if you run into this error, try installing the designer on a different client machine.