This issue has plagued me since moving to SQL Server 2005. I find the diagram tools help me visualize my data and relationships. The problem is that with SQL 2005 sometimes you get this error when you try to create a new diagram:
You can follow the instructions in the error message till the cows come home and still not be able to successfully create a diagram. This is true even if you set the owner to SA or some other administrator.
After much screaming and gnashing of teeth I finally learned that the problem isn’t really with the owner, it’s with the database compatibility level. Your database may be running in either SQL 7 or 2000 compatibility mode, not 2005.
To resolve the problem, in SQL Server Management Studio, right click on the database node and click Properties. Select Options on the left and set the compatibility level to SQL Server 2005 (90).
Just make that change, click OK and you’re good to go.