Narrowed down the problem. Don't know how specific the problem is to the DNN Starter Kit, but there's no doubt that when the problem is happening, it definitely affects <only> the DNN Starter Kit and doesn't affect any other projects, inlcuding non-Starter Kit web projects.
The problem seems to be caused by adding the specific custom server control I'm working with to the Toolbox, and at this time I can only describe in general what is happening because some things I thought could be replicated reliably on closer inspection and with repeated attempts isn't as consistent as i thought. Anyway, here is a summary...
Problem: Toolbox elements are greyed out, disabled after installing a custom Server Control. They still exist but are not accessible.
Affected versions of Visual Studio: Whereas I thought initially it affects only VS2008, I've been able to cause this to happen in VS2005 also. On my Dev machine, VS2005 and VS2008 are installed side by side although as much as possible I keep all projects, controls and other code separate. So for instance in this situation although I created/opened a DNN Starter Kit projects which look similar in both VS2005 and VS2008, the file locations are different and different instances of the same control are used in both projects.VS installs and project file locations are default.
Running on Vista Ultimate, UAC disabled. May be a factor, since Vista has these strange permissions issues.
Description: After creating a new DNN Starter Kit project and configuring the Project Properties with the 2 or 3 required manual modifications, Added the new Server Controls the usual way (Toolbox properties > Choose Items...). The result is immediate, when the Toolbox is next opened, tabs are functional but maybe not all visible and all elements (Tools or controls) are greyed out and inaccessible.
Solution: Well, there isn't a reliable solution although I now have VS2008 working. After futzing around I laid everything aside and opened up the projects again the next. day. Includes a reboot (maybe that was significant?) Found the problem occuring in VS2005 unexpectedly when I thought the problem was unique to VS2008. Then, partly because of the unexpected situation in VS2005, decided to re- install the Starter Kit and re-open a project in VS2008. Magically the VS2008 project now appears to work.
How long this will work, I don't know. Not sure why this is happening, although I haven't worked with this Custom Server Control before, I've certainly been working with other custom Server Controls with previous DNN Starter Kits and VS2005 in the past without a problem.