"Failed to generate a user instance of SQL Server due to a failure in starting the process for the user instance. The connection will be closed." error

After creating a new MVC3 web application in Visual Studio 2010, running it and trying to log in (or do any operation that needs MembershipProvider access) throws the following exception/error:

Failed to generate a user instance of SQL Server due to a failure in starting the process for the user instance. The connection will be closed.

If everything worked fine an aspnetdb.mdf file would have been created in the App_Data folder with the necessary structure.

I do not know why but the solution is deleting the

c:\Users\[Username]\AppData\Local\Microsoft\Microsoft SQL Server Data\ 

folder entirely.