After exhausting all my options in troubleshooting this issue I turned my attention to the internet. After a little bit of research I found out that PowerCommands for Visual Studio 2008 may be the culprit. I checked to see if PowerCommands for Visual Studio 2008 was installed on my computer and it was installed on my computer. I uninstalled PowerCommands for Visual Studio 2008 and lo and behold that fixed the issue. I was once again able to add items to Visual Studio Toolbox.
PowerCommands for Visual Studio 2008 is a great add-on for Visual Studio that has many useful features for a developer but to me this is a critical issue that must be fixed otherwise one cannot use the Toolbox. So if you have PowerCommands for Visual Studio 2008 please be aware that you may not be able to add any items to the Toolbox. You have to uninstall it using Add/Remove programs to be able to add items to the Toolbox.