I am currently developing using SSMS 2008 R2 SP1.
To debug the add-in, configure your project as shown:
The command line for SSMS on my computer is:
C:\Program Files\Microsoft SQL Server\100\Tools\Binn\VSShell\Common7\IDE\Ssms.exe
Then build the solution, and right click the Setup project, and select Install.
Then press F5 to debug, and you can set breakpoints etc.