Installed a fresh copy of Sharepoint Designer on a new VM. Connect to the site with no problem. See all the files. However, when double-clicking to open a file, NOTHING HAPPENS! Very intruging.
Soln: Must activate the copy of SPD! They are not kidding when they say 'some features are not available'....why not just say 'you can't open the files unless you activate the software' or 'you need to activate NOW'....duh