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This could be a problem caused by having Large Fonts (120 DPI) enabled in Windows. VisualSite Designer requires either Normal fonts (96 DPI).
To change the settings go to your Desktop and then right mouse button and select Properties. Next click on the Settings Tab and then click on Advanced. You will now see a DPI setting. This needs to be set to Normal.
If you're using Windows Vista, the options are slightly different. You can right-click the Desktop and select Personalize. Then on the left-hand side you'll see a link to Adjust Font Size. Click this and set your font size to Normal (96 DPI).
After you make the change reboot your system and you should be all set.
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