This error is caused by a SQL Server log getting too large.
The solution is to shrink to offending database.
Or, if you are like me and have a SQL Server 2008 database for development, run the following script:
exec master..sp_msforeachdb 'ALTER DATABASE [?] SET RECOVERY SIMPLE; DBCC SHRINKDATABASE ([?], 1); ALTER DATABASE [?] SET RECOVERY FULL;'