Quite often it happens that SQL Server Management Studio’s Dropdown box is cluttered with many different SQL Server’s name. Sometime it contains the name of the server which does not exist or developer does not have access to it. It is very easy to clean the list and start over.

Delete mru.dat file from following location.
For SQL Server 2005:
C:\Documents and Settings\<user>\Application Data\Microsoft\Microsoft SQL Server\90\Tools\Shell\mru.dat
If you can not find mru.dat at above location look for mru.dat in following folder.
C:\Documents and Settings\[user]\Application Data\Microsoft\Microsoft SQL Server\90\Tools\ShellSEM\mru.dat
For SQL Server 2008:
C:\Documents and Settings\<user>\Application Data\Microsoft\Microsoft SQL Server\100\Tools\Shell\mru.dat
If you can not find mru.dat at above location look for mru.dat in following folder.
C:\Documents and Settings\[user]\Application Data\Microsoft\Microsoft SQL Server\100\Tools\ShellSEM\mru.dat
If you are using VISTA OS instead of XP OS. Replace C:\Documents and Settings\[user]\Application Data\Microsoft\ with
C:\Users\\AppData\Roaming\Microsoft\ and it should work.
Make sure to take note down any IP address of SQL Server you may need in future.
Reference : Pinal Dave (http://www.SQLAuthority.com)




Just want to add 2 cents to the article.
You might want to keep your folder options, to view show hidden folders, if not then you will not be able to see some folders , like Application Data folder.
Thanks, Very useful information.
Re: Vista OS & SQL 08
For me it was a different file:
C:\Users\[user]\AppData\Roaming\Microsoft\Microsoft SQL Server\100\Tools\Shell\SqlStudio.bin
rename the above file and it does the trick.