This error could be caused by having a project that has another project embedded inside the folder structure and the projects location is set to File System instead of HTTP. To resolve this issue you would have to open the main .SLN file in notepad and replace the sections:
Project("{E24C65DC-7377-472B-9ABA-BC803B73C61A}") = "C:\...\MySite\", "C:\Inetpub\wwwroot\MySite",
with
Project("{E24C65DC-7377-472B-9ABA-BC803B73C61A}") = "http://localhost/MySite/", "http://localhost/MySite",
and also if missing, add
SlnRelativePath = "c:\inetpub\wwwroot\MySite\"