Do i create the Entity Framework Model in the Model Folder of the MVVM Design?
I usually create a separate project for the model which is storage ignorant (using POCOs) and also usage ignorant.
Or do i have to create a new project for each item of the MVVM Model(i.e Views Project as a WPF Project,Model Project as a class libraray, ViewModel project as a class library)?
If you are planning on having more than one type of view-model per model (e.g. one for WPF, one for a service, one for another service), then separate your view-models into their own assembly.
If your views only represent one model layer, then you can start out your views and view-models in the same assembly, then separate them if you get to a situation that you have multiple models under the same view (each with its own view-model).
You should also consider if you want the ADO.NET's model to be your main model (upon which you base your view-models), or if you want to treat it as a sort of view-model for storing (where the storage service is a sort of view).