This problem happened in the first few days/weeks of the mod tool and XNA, the solution was to rename the file to something else. This made the system choose the OpenGL device (From memory), but it leaves you with another problem.... you can not export directx shaders.
From what we found this was on the On board Intel graphics chipsets only and there was an update on the intel site for the drivers. It had something to do with the caps for the directx device, I think xsi released a small fix as well.
I personally gave up and went back to Blender.