I have no idea how it happened, but a project I have in source safe suddenly started believing I connected to the sourcesafe database through a web service. All the bindings of the solution were broke, and I was unable to re-connect at all (all dialogs that allow me to connect referred to web service URIs instead of physical paths to local machines). I finally discovered what happened, there is a property of the solution itself which specifies which method is used to connect to the sourcesafe database, and for some reason it got screwed up. To fix it (and have it find the database through a local path), I did the following with VS 2005:
Tools > Options > Source Control > Plug-in Selector.
Here I chose "Microsoft Visual SourceSafe" in lieu of the currently selected "Microsoft Visual SourceSafe (Internet)".
Again, I have no idea HOW it go to be like this, but this switched it back for me.