Jim,
Nothing in here is jumping out at me. Is it possible you have an app.config in the project as well and it's picking up on that instead of web.config? FYI, MM doesn't connect the same way at design time to run the builders as run time, so there may be an issue there.
Either way, this code is in the Web Forms project and I would put a breakpoint in GetDatabaseInfo() to track down what's happening.
---J
>at Oakleaf.MM.Main.Builders.mmBindingSourceWebMemberEditForm.GetDatabases()
>at Oakleaf.MM.Main.Builders.mmBindingSourceWebMemberEditForm.GetDatabaseSets()
>at Oakleaf.MM.Main.Builders.mmBindingSourceWebMemberEditForm.GetDatabaseInfo()
>at Oakleaf.MM.Main.Builders.mmBindingSourceWebMemberEditForm.Init(Object value)
>at Oakleaf.MM.Main.Builders.mmBindingSourceWebMemberEditForm..ctor(Object value, Control currentControl, ITypeDescriptorContext context)