I just spent several hours on an issue when using VS2012, WPF 4.5 and design-time data, specifically the DesignInstance attribute.
Goal: I wanted to
Check if the "Platform target" in your build configuration is set to "AnyCPU". My was set to "x64", so the designer was complaining about the missing type.
VS is running in 32 bit so maybe there is an issue with executing code from 64 bit assemblies.
I found the solution when trying to open my UserControl in "Blend for Visual Studio". It displayed an neat exception to me.
P.S.: After using the accepted answer: Use "d:Type=vm:DesignAlertsViewModel" instead of "vm:DesignAlertsViewModel" my control was visible, but no example data was displayed.