I am using Visual Studio 2008 Professional SP1. On my PC, SQL Server 2008 Express R2 and SQL Server 2008 Compact Editions are installed. When I right click on Solution Explorer and add "Local Database", which database I am creating? Is it the non-campact or compact edition?
You can easily determine this by extension of the database file you get:
I don't have VS 2008 at hands, but in VS 2010 'Local Database' refers to SQL Server Compact edition database and 'Service-based database' refers to 'non-compact'. File extension will let you determine what you get in any case.