I have visual 2010Express, SDK v7.0a (XP SP3) and had the same problem.
I found this and work for me:
How to Fix error Task could not find "sgen.exe" using the SdkToolsPath for v7.0a in VS20101I downloaded and installed the latest SDK:
Windows SDK v7.1 for Windows 7. Supported Operating Systems: Windows 7, Windows Server 2003 R2 Standard Edition (32-bit x86), Windows Server 2003 R2 Standard x64 Edition , Windows Server 2008, Windows Server 2008 R2, Windows Vista, Windows XP Service Pack 3
2So what I did was
copied the v7.1 sgen.exe application file located at C:\Program Files\Microsoft SDKs\Windows\v7.1\Bin\NETFX 4.0 Tools\sgen.exe and the
pasted it in to the v7.0a directory at C:\Program Files\Microsoft SDKs\Windows\v7.0A\bin\NETFX 4.0 Tools\.
On computers running 64bit Windows 7, you'll notice that C:\Program Files for 64bit progam files and C:\Program Files (x86) is for 32bit files, but this difference wasn't an issue.
Tanks to Doug Kennard (May 29, 2010, somewhere on the web)