I don’t have SQL Server Express, I’ve got the real deal. Development Storage for Windows Azure assumes you are using SQL Server Express with the instance name SQLEXPRESS.
Thanks to this article I now know that you just need to edit the config file for DevelopmentStorage.exe, which is usually located in C:Program FilesWindows Azure SDKv1.0binDevelopmentStorage.exe.config.
There are two spots to modify. The first is the connection string (XPath: /configuration/connectionStrings/add/@connectionString) and the second is the dbServer attribute of the Table service (XPath: /configuration/developmentStorgeConfig/service/service[@name=‘Table’]/@dbServer).
And then it will work. Enjoy!