Your problem is that you have the same element name with a different structure somewhere in the document.
So for example, if you have
<Item>Bicycle</Item>
and then in the document you
<Item Type="Sports"><Name>Bicycle</Name></Item>
XSD will not be able to create the correct schema for the second Item attribute structure, since it already defined the element as a SimpleContent column based on an earlier declaration.
The solution is to (naturally) avoid using the same element name for different structures in your XML. Obviously, this is inconvenient in your case, since Microsoft owns the XML in question (hypothetically, since a comment from Deni indicates that this site no longer exists.) You will have to use XMLWriter or some other option to change the name of the violating element for something something unique.
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