Just ran into this nice error while trying to generate a proxy using the SvcUtil and /reference option in a .NET 4.0 Project.
Error 13 Cannot load reference assembly 'C:\MySource\bin\Debug\MyReference.dll'
The solution makes total sense as the current version of SvcUtil is for .NET 3.5 only.
You can get around this by changing your path to:
C:\Program Files\Microsoft SDKs\Windows\v7.0A\bin\NETFX 4.0 Tools\svcutil.exe
Alternatively you can download the latest Microsoft Windows SDK for Windows 7 and .NET Framework 4
And then change the SvcUtil path to:
C:\Program Files\Microsoft SDKs\Windows\v7.1\bin\NETFX 4.0 Tools\svcutil.exe
Hope this helps someone.