Custom server controls have a bug in designer mode as of SP1. It was not present in Studio 2008 before service pack.
When you add your control on a web page and view it in design mode, and after that recompile a control, it stops to render in design mode. Error text "Error creating control - [text] could not be set on property" is rendered instead.
Closing and opening Visual Studio fixes the issue.
Stepping through a debugger during the first render, I see that property setter is invoked correctly. During second render property setter is not invoked.
My guess is that the issue is with caching compiled control library somewhere in Visual Studio designer internals.
I attached a demo solution.
It does not matter if the reference to controls library is file- or project- based. I tried to make two separate solutions - the same bug.
I run fully patched Windows XP SP3 under administrative account.
For controls developer this is a rather annoying issue. I basically have to close and reopen Studio each time I want to look at my changes, and that's pretty often. So I hope to find some fix or workaround.