I'm following this example - http://blog.henryong.com/2010/06/08/how-to-create-custom-sharepoint-2010-page-layouts-using-sharepoint-designer-2010/
I've gone to Master pages and layouts (_catalogs/masterpage/Forms/AllItems.aspx)
I've created a new page layout, when I hover over to click "Edit in Microsoft SharePoint Designer" the page opens in notepad
I've clicked on a few other aspx pages in this library and they open in Notepad.
But the master pages I clicked on do open in SP Designer.
Update with my answer
I did a Repair on SharePoint Designer and rebooted. Its working now.