Same issue here. Created a default file system project using SQLExpress 2008.
Connected to Admin, created a few pages, blog, etc. Then did nothing for a few hours, but remained logged in.
A few hours later, I accessed it again - had to log back on - everything seemed fine.
While the webpage was opened to the Dashboard, I closed the Project Manager, hit refresh and of course IE displayed a page not found error.
I then reopened the project manager and it shows 'Connecting' under status. No errors after 1hr. Nothing in the event viewer.
Logged off/back on - same issue
Reboot - no difference
Tried to create a new project (while it still showed 'connecting', and received the 'FileNotFound exception' (the one that requires deleting the _EmptyProject folder).
Closed project manager, and deleted the _EmptyProject folder, but still receive the Connecting message in the status column.
I then deleted the project (only one created), and went through the new project creation process and it is working again - but the original project is of course now gone. Deleting it was the only way I could get it working again.
I navigated around a bit, created some objects, everything seemed fine - though I noticed the _EmptyProject folder still existed (again). Closed IE, closed Project Manager. Re-launched PM and once again am seeing 'Connecting' in the status column.
Using 2003 SP2