There's good news for all of you out there who are struggling with BDC Definition files. The product group has recently released a BDC Definition Editor tool. It's part of the 1.2 Office Server SDK. (Check the Product Team Blog link for a link...) Take a look at the tool, as it should help you out. I'm just getting a chance to kick the tires of it today. Be aware that it's going to install SQL Server 2005 Express Edition locally. It won't install without it for some reason. (I didn't try it on a box that already had a SQL instance) I believe it's going to want to look at the AdventureWorks DB. If you don't already have it, you can grab it from it's new home at CodePlex.( http://www.codeplex.com/SqlServerSamples/ ) If you're having trouble building connection strings, there's an example in the readme file in the install location for the BDC definition editor. (Tools folder of the SDK install location)
I'll post more when I know more!
UPDATE: Check out this article for a great walkthrough of the tool.
Again, you'll need the AdventureWorks DBs. The example uses the AdventureWorks DW database, which is the download titled AdventureWorksBI.msi. Make sure you're grabbing the 2005 versions of the MSI files if that's what you need.