A colleague of mine was having similar issues and found this:

IE 8 has a feature called Loosely-Coupled Internet Explorer (LCIE) which results in IE running across multiple processes.

http://www.microsoft.com/windows/internet-explorer/beta/readiness/developers-existing.aspx#lcie

Older versions of the Visual Studio Debugger get confused by this and cannot figure out how to attach to the correct process. You can work around this by disabling the process growth feature of LCIE. Here's how:

1. Open RegEdit
2. Browse to HKEY_LOCALMACHINE -> SOFTWARE -> Microsoft -> Internet Explorer -> Main
3. Add a dword under this key called TabProcGrowth
4. Set TabProcGrowth to 0

Since you are running on Windows Server 2003, this is all you should need to do. If you run into the same problem on Vista or newer, you will also need to turn off protected mode.

Credit: Brad Sullivan, Program Manager, Visual Studio Debugger, MSFT

Source: http://social.microsoft.com/Forums/en-US/vsdebug/thread/e2c795cd-b7a0-4fad-b7c9-b1ca40d7302e

I recently had a similar issue after installing an update to Windows Vista. Basically the update changed the hosts file, which caused the same issue you describe.

Apparently, the entry in the hosts file needs to be prefixed by three colons, ie.:

:::1 localhost

For some reason the update to Vista changed this to two colons. I'm not sure if you have the same problem, but it sounds like it's worth checking out.

If you run into this with IE8 and Visual Studio 2008, modify your hosts file and point the localhost to 127.0.0.1:

::1 localhost

127.0.0.1 localhost