Resolution:
1.Check whether you have the working directory in VSS client set correctly
  and it has to be the same directory mentioned as project directory in
  designer.
  
2.Designer internally uses SS.EXE command line to interact with VSS client.
  It is tested only with English locale.  If the command line adapter
  is localized (meaning the commands are set to a different language)
  designer has  no way of 'adapting' to that. Hence check your
  regional setup pointing to English and not a different locale.
  Go in to Regional Setting and Language Options
  In the standard and format: choose english to have the VSS working
  correctly in designer.