My solution structure looks like this:
AdventureWorks.Windows (this is my win ui project):
--> project reference to BusinessLib (this is my db generic project)
--> file reference to OrmSupportClasses.Net2
BusinessLib (this is my db generic project)
--> project reference to BusinessLibDbSpecific (this is the db specific project)
--> file reference to OrmSupportClasses.Net2
BusinessLibDbGeneric (this is my db specific project)
--> file reference to OrmSupportClasses.Net2
--> file reference to SqlServer.Net2
After taking the advise of Frans, I rebuilt each project 1 at a time, working from bottom to top. Added a new entity collection from the toolbar to the user control designer, and was able to set the factory to use (using both the smart tag, and the link in the property explorer)
So, recompiling seems to have fixed the issue.
Thinking back on the issue, I think that it was happening right after generating the code for the first time and adding the projects to the solution, so I dont think that the code was compiled when I was getting the error.
Long story short, the problem seems to have corrected itself after rebuilding.