In VS2010 Scrum 1.0 project template, can I create a PBI that has child PBIs? If not, what is a good alternative for large user stories aka product backlog items?
The short and simple answer is yes. You can create a child PBI. Quite simply, under the Links tab, you add a new (or link to an existing) PBI work item.
The greater question is: Why do it?
Strictly speaking, from a Scrum point of view, you shouldn't have hierarchy in your user stories. The stories, as Mike Cohn (I believe) put it, you should INVEST in good stories. The 'I' stands for independent, which a story can't be if it is the child of another.
The only "Scrum-appropriate" reason to introduce a hierarchy is when you're breaking down a large story into small workable stories, or (rarely) molding to overly-small stories into one story of reasonable size.
Assaf.