After installing Visual Studio 2008 on a new machine and starting playing with a simple Windows Communication Foundation project, I attempted to change service's WCF settings using WCF Service Configuration Editor utility (SvcConfigEditor.exe). However, I got the "Windows SDK is not installed correctly" error. "Internets" were surprisingly mum on the subject, so I had to figure out the solution myself.
To fix the problem, I had to install Windows SDK 6.0 manually. After I did that, the problem went away. Just quit Visual Studio 2008 before installing Windows SDK.
Update: Even after reinstalling Windows SDK, first time right-clicking on the web.config in the Visual Studio '08 Solution Explorer does not bring "Edit WCF Configuration" item to the menu. However, after I did Tools | "WCF Service Configuration Editor", "Edit WCF Configuration" item started showing up upon right-clicking the .config file.