I recently upgraded a database project (.dbp file) to Visual Studio 2010. All I got was an error saying “database project not converted” and “Illegal characters in path”. I turned out that the project file was in ANSI encoding and referred to files which had national characters (å, ä and ö). In these cases, the entries in the project file had special formatting:
Script = “|file name|lots of hexadecimal digits”
Script = “|20060111 Update COUNTYCOUNCIL Götaland Shortname .sql|00320030003000360030003100310031002000550070006400610074006500200043004f0055004e005400590043004f0055004e00430049004c0020004700f600740061006c0061006e0064002000530068006f00720074006e0061006d00650020002e00730071006c”
What I did was to remove the vertical bars and the hexadecimal string, and saved the file with UTF-8 encoding. Then there was no problem upgrading it.