Thanks to Brian (actually first Google) for this info. It's probably well known and all over the web ... but I just stumbled upon it today.

In previous versions of the IDE and other XML files, you can describe the XSD for a given xml file in the standard way, with xmlns attribute in the root element. The VS IDE will then look in Visual Studio 8\Xml\Schemas\ directory and provide intellisense when editing the XML.

Turns out, the .NET configuration file XSD is now automatically merged with the schemas known to the VS IDE. So having the xmlns attribute on a configuration file element just confuses the IDE (and Intellisense won't work)

Thanks to Brian - first hit on Google search for this info!

.NET Ramblings - Brian Noyes' Blog - WCF Config file intellisense... why hath thou forsake me?