CRM 2011 XAML Workflow Tools Error "Could not generate view for workflow"

Following all the steps described in  Microsoft Dynamics CRM 2011 Developer Toolkit project, I created a new XAML Workflow library (described in Create and Deploy XAML Workflows Using the Developer Toolkit) but dragging and dropping Workflow activity throws the System.IO.IOException: cannot locate resource 'workflowdesigner.xaml'. I've used SDK 5.0.16 dlls to add to VS toolbox. I have also tried creating a workflow in CRM 2011 and editing the WF in Visual Studio, which gives the same error message and a red box instead of the Workflow sequence.

Thanks, 

Ben