When you try to develop Windows Azure Application using your Visual Studio 2010 and get the following error
Windows Azure Tools: Failed to initialize Windows Azure storage emulator. Unable to start Development Storage.
Few simple steps you need to follow is
1. Go to Windows Azure SDK folder under program files
2. Find DSInit.exe from C:\Program Files\Windows Azure SDK\v1.3\bin\devstore
3. Run it as Administrator.
4. Ensure that you have SQLExpress installed and accessible via localhost\SqlExpress