This is a known issue that usually occurs when you are inside of a website project (they do not have csproj or vbproj files). I am still trying to figure out how to get around this. 
It should work in other project types (like a regular csproj asp.net project).

See this work item on my CodePlex page ( http://snippetdesigner.codeplex.com/workitem/5438) to track the status of this bug.