I got an issue and learned something at the same time....
I created a DBML from an existing server database.
From the DBML I wanted to create local database
You need to open master database via server explorer in Visual Studio (Add New Connection + Select master database) then add a New query, type Drop Database xxxx and execute it. You can also use Sql Server Management Studio.
server explorer
master
New query
Drop Database xxxx
Sql Server Management Studio.