"Column 'rowguid' does not allow nulls."

can you show the code that performs the INSET?

If you have an insert statement like this:

INSERT INTO [MyTable] ([PKColumn], [OtherColumn]) VALUES (NULL, 'some data')

it will actually try to put a null in the not-nullable column.  What you want it this:

INSERT INTO [MyTable] ([OtherColumn]) VALUES ('some data')

That will use the default value and create the new id.

I didn't mention the application is VB 2005 as a VS 2005 project.  I have a simple windows form with a table adapter that contains the SQL commands for select, update and insert.  

This is the table definition (from SQL server):
CREATE TABLE [dbo].[Town](
      [TownCode] [int] IDENTITY(1,1) NOT FOR REPLICATION NOT NULL,
      [Town_cd] [int] NULL,
      [TownName] [nvarchar](100) COLLATE SQL_Latin1_General_CP1_CI_AS NULL,
      [TownState] [nchar](2) COLLATE SQL_Latin1_General_CP1_CI_AS NULL,
      [rowguid] [uniqueidentifier] ROWGUIDCOL  NOT NULL CONSTRAINT [MSmerge_df_rowguid_2AF7AF2B05834382AAD04F76897941BE]  DEFAULT (newsequentialid()),
 CONSTRAINT [PK_Town] PRIMARY KEY CLUSTERED
(
      [TownCode] ASC
)WITH (IGNORE_DUP_KEY = OFF) ON [PRIMARY]
) ON [PRIMARY]

This is the VB code for the Insert command:
            Me._adapter.InsertCommand = New System.Data.SqlServerCe.SqlCeCommand
            Me._adapter.InsertCommand.Connection = Me.Connection
            Me._adapter.InsertCommand.CommandText = "INSERT INTO [Town] ([Town_cd], [TownName], [TownState]) VALUES (@p1, @p2, @p3)"
            Me._adapter.InsertCommand.CommandType = System.Data.CommandType.Text
            param = New System.Data.SqlServerCe.SqlCeParameter
            param.ParameterName = "@p1"
            param.DbType = System.Data.DbType.Int32
            param.IsNullable = true
            param.SourceColumn = "Town_cd"
            Me._adapter.InsertCommand.Parameters.Add(param)
            param = New System.Data.SqlServerCe.SqlCeParameter
            param.ParameterName = "@p2"
            param.IsNullable = true
            param.SourceColumn = "TownName"
            Me._adapter.InsertCommand.Parameters.Add(param)
            param = New System.Data.SqlServerCe.SqlCeParameter
            param.ParameterName = "@p3"
            param.DbType = System.Data.DbType.StringFixedLength
            param.IsNullable = true
            param.SourceColumn = "TownState"
            Me._adapter.InsertCommand.Parameters.Add(param)

This command works fine when run in a query window in VS 2005:
INSERT INTO Town
                      (Town_cd, TownName, TownState)
VALUES     (1234, 'Jamestown', 'NY')

The problem occurs when I click the Save button on the Binding Navigator on my form for a new row.
This is the code for that button:
Private Sub TownBindingNavigatorSaveItem_Click(ByVal sender As System.Object, ByVal e As System.EventArgs) Handles TownBindingNavigatorSaveItem.Click
        Me.Validate()
        Me.TownBindingSource.EndEdit()
        Me.TownTableAdapter.Update(Me.UPC_MobileDataSet.Town)

End Sub

The exception occurs in the EndEdit method.