Here is the way to get rid of this problem.
Follow through the steps:
Step 1. Enabling User Instances on your SQL Server installation
First we are going make sure we have enabled User Instances for SQL Server installation.
Go to Query Window in SQL Server Management Studio and type this:
exec sp_configure 'user instances enabled',
Step 2.
Go
Reconfigure
Run this query and then restart the SQL Server.
Step 3. Deleting old files
Now we need to delete any old User Instances.
Go to your C drive and find and completely DELETE this path (and all files inside):
C:\Documents and Settings\YOUR_PC_USERNAME\Local Settings\Application Data\Microsoft\Microsoft SQL Server Data\SQLEXPRESS
After deleting this directory you can go to Visual Studio, create ASP.NET Website and click on your App_Data folder and choose Add New Item and then choose SQL Server Database and it should work!!!