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Are you using the default DB instance? If not you may need to specify it to the installer by following this KB:
or is this SQL Express? These are the requirements for using SQL Express (in the install guide):
By default, TCP/IP is disabled in Microsoft SQL Express 2005. TCP/IP must be
enabled for Foundstone to function properly.
Open the SQL Server 2005 Surface Area Configuration wizard
Start | All Programs | Microsoft SQL Server 2005 | Configuration
Tools | SQL Server 2005 Surface Area Configuration
Select Surface Area Configuration for Services and Connections.
Select Remote Connections under Database Engine.
Select Local and remote connections and select a TCP/IP option.
Select OK to save the settings.
Restart the Database Engine service for the change to take affect.
I hope that helps.
We followed the points/information in the linked KB article without success. The SQL Express information does not apply as we're not using it.
Any other thoughts?
Off the top of my head I don't have any other suggestions. I would open up a service request so we can take a better look at your system. This isn't an issue that we have seen before.