I got this error while running a web application in Visual studio 2005 i.e .NET 2.0
unable to connect to visual studio's localhost web server
This issue can be solved by replacing WebDev.WebServer.EXE file in your .NET folder located at:
C:\WINDOWS\Microsoft.NET\Framework\v2.0.50727 with same file from your friends machine where VS 2005 is working fine.
This solved my problem.