I have noticed this problem before on SQL Server 2005 and it is present of my edition of SQL Server 2008. I am not sure if you have fixed the problem but I could not find a report of on it.

The problem is if you click on the Database Diagrams folder in Management Studio and you get the message "The Database Diagram doesnot exist do you want to create it " If you say use it will pop up window to create the diagrams. But if you click "NO" is starts an error message that runs an infinte loop.