<#@ template  language="C#" debug="true" hostSpecific="true" #>
<#@ output extension=".ReadMe" #>
<#@ Assembly Name="System.Core.dll" #>
<#@ Assembly Name="IdeaBlade.VisualStudio.DTE.dll" #>
<#@ Assembly Name="IdeaBlade.VisualStudio.OM.CodeGenerator.dll" #>
<#@ Assembly Name="IdeaBlade.EntityModel.Edm.Metadata.dll" #>
<#@ import namespace="System" #>
<#@ import namespace="System.Reflection" #>
<#@ import namespace="IdeaBlade.VisualStudio.DTE" #>
<#@ import namespace="IdeaBlade.VisualStudio.OM.CodeGenerator" #>
<#@ import namespace="IdeaBlade.EntityModel.Edm.Metadata" #>
<#
	// Source for this file located at: C:\Users\Terry\AppData\Local\Microsoft\VisualStudio\10.0\Extensions\IdeaBlade, Inc\IdeaBlade OM Designer Extension\6.0.8.0\DomainModelTemplate.tt
	// Model1.edmx  <--- This is needed so that "Transform Related Text Templates On Save" works correctly.
	var template = new NewTemplate(this);
	template.Generate();
#>
<#+ 
  public class NewTemplate : DomainModelTemplate
    {
        public NewTemplate(Microsoft.VisualStudio.TextTemplating.TextTransformation textTransformation)
            : base(textTransformation)
        {
        }
 
        protected override void WriteNamespaceHeader(string namespaceTxt)
        {
            this.WriteLine("#IF SILVERLIGHT\nNamespace Web\n#End If");
            this.PushIndent(this.IndentText);
        }
 
        protected override void WriteNamespaceFooter(string namespaceTxt)
        {
            this.PopIndent();
            this.WriteLine("#IF SILVERLIGHT\nEnd Namespace\n#End If");
        }
    }
#>

This will automatically reapply the namespaces each time you regenerate the model.

I've figured it out!

I don't use VB.Net with SL so I don't know if there is a better solution, but it is because your namespaces do not match. C# puts the full namespace in automatically, but VB.NET decides what it should be for you.  

Insert this at the top of the Model.IB.Designer.vb class right below the IdeaBladeLicense attribute

#If SILVERLIGHT Then
Namespace Web
#End If

and insert this at the very bottom

#If SILVERLIGHT Then
End Namespace
#End If

I'm sure there is a better solution, but this should get you up and running for now until someone at IdeaBlade can give you a better solution.

Also, I didn't realize until you posted your sample that the model is in the web project, so you don't need the other dll in there.

ClientUIMVVMApp8.Web, Version=1.0.0.0, Culture=neutral, PublicKeyToken=null