When you install BizTalk 2006 (and BizTalk 2004 also I assume) the default editor for XSD files is set to be the BizTalk Editor.  This is great if all you are doing is creating BizTalk schemas.  If you do however want to do something different, for example create a DataSet you will run in to problems.

When I tried to createa a DataSet I got a nice little error telling me it had failed, then I tried to open the resulting file (which is also and XSD) to soo the BizTalk Editor try to open it.  Not too clever really.

In order to get around this, make sure you set your default editor back to XML Schema Editor before trying to create a DataSet.  This seems to work OK.