Found this solution as well on the web:
http://social.msdn.microsoft.com/Forums/en-US/sharepointcustomization/thread/90f87aeb-965e-48c8-8c81-1164bd720e4d
It took me a while to figure out that the cause of this problem was the large number of items SharePoint Designer was trying to load to create the design view of the web part. I was able to complete the work I needed to do on the web part with the following work-around/best practice: When creating the web part in the browser, set the Item Limit to a small number such as 10 or 15. After converting the Web Part to an XSLT Data View, check the "Show with sample data" option and Designer will use sample data instead of retrieving the real data and it will not cause the crash. After you set the DataFormWebPart to "Show with sample data," you can set the paging to "Display all items" and Designer will continue to work with the data view. After editing and saving the DataFormWebPart with a large number of items, it will work as expected when viewed in the browser displaying real data. The crash seemed to be limited to Designer not being able to handle the real data - the browser view works OK as long as Designer is working with sample data