Steve, I have been dealing with this issue for a couple of days. Not only was I not able to remove the old connection, but I was also unable to add a new connection.
Here is what I found after searching high and low.
On Windows 7 and perhaps Vista try renaming or deleting this file “DefaultView.SEView” in this folder C:\Users…\AppData\Roaming\Microsoft\VisualStudio\9.0\ServerExplorer
Someone else said to remove the file from AppData\Local but that’s just not right.
Sai - A Programmer's FAQ 