It may be necessary to change the SQL Server instance that your Windows Azure Storage account uses if you aren't using SQL Server Express.  The error you will see is this:

the SQL Server instance ‘localhost\SQLExpress’ could not be found.   Please configure the SQL Server instance for Development Storage using the ‘DSInit’ utility in the Windows Azure SDK.

 

From the start menu find the Windows Azure SDK Command Prompt like this:

Then once the command prompt starts, you need to run the dsinit app.  In the picture below is for the Default Instance. The "/sqlinstance:." can be replaced with your specific instance name, so if your instance is "ENTERPRISE", you would put "/sqlinstance:ENTERPRISE".

Please note that this does not work on other computers.  Your sql server instance must be local to your current machine.  A development nightmare, yes, but a nessary evil at this time.