To get rid of this annoying error, just choose Configure Service Reference and select either Array or follow on of the instructions which are described here. I decided to use the ExtensionMethod way..
As confirmed by one of the Microsoft Product guys, this bug is killed in the final Version of Visual Studio 2010 – which should have been released yesterday .. according to rumors the RTM is detailed..
Links
Configure Service Reference Dialog Box @msdn.microsoft.com
ObservableCollection missing as Collection Type in WCF since VS 2010 RC
VS2010 RC – WCF ObservableCollection is missing in Service Reference
Well, this would be good if the link to the solution worked.