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Try starting your service first by right-clicking the . svc file and using "View in Browser". Then give the URL of the service to the "Add Web Reference" dialog.
To add a reference to a service in the current solution (. NET Framework projects) In Solution Explorer, right-click the name of the project to which you want to add the service, and then click Add Service Reference. The Add Service Reference dialog box appears.
To add a Web reference to a project. In Solution Explorer, right-click the name of the project to add the Web service to and then click Add Web Reference. The Add Web Reference dialog box is displayed. In the URL box, enter the URL of the Web service to use.
Kirk Evans blogged about that very issue Here
Basically, you just add a service reference. A web reference is just one type of service you can add.
A Service Reference is the same as a Web Reference -- that is, you can add an ASMX web service as a reference and it will generate your proxies/etc. just like Add Web Reference did.
The change is to support WCF and have all remote ("service") references look and act the same in VS.
I think you need to pass the url to the asmx, not the wsdl
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