How do I determine why a webservice reference is being prevented from being added to my project in VS2008?

I had the same issue on VS2010. In my case the problem was the proxy server. I got the wsdl from an external url. My solution: set the proxy in VS2010. Edit devenv.exe.config and add <defaultProxy> under <system.net>:

<system.net>
        <defaultProxy enabled="true" useDefaultCredentials="true">
            <proxy bypassonlocal="True" proxyaddress="http://yourproxyserver:port"/>
        </defaultProxy>
</system.net>

If the proxy comes from a .pac file, you can omit the <proxy> tag:

   <system.net>
        <defaultProxy enabled="true" useDefaultCredentials="true">
        </defaultProxy>
   </system.net>

An old post about a related issue:
http://fhtino.blogspot.it/2006/11/visual-studio-2005-proxy-problem-in-add.html

Finally figured it out.

I used WebService Studio to give me a better idea of what was going on. It came back with the error message "The request failed with HTTP status 407: Proxy Authentication Required".... which let me know that I had to install the new security certificate...the old one had expired.

I guess that answers this question about how to find more about what is invalid about the web service.