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I am hvaing hte same issue. The only difference is that I am using the MSDE 2000 install instead of a remote SQL connection. I was trying to upgrade it because EPo abruptly stopped working. In looking at aerors etc it seems that the MSDE portion is what is having the problem. I was hoping that running the upgrade would bring forward my settings with a fresh copy of MSDE 2005
Curious to know if you ever found resolution to this issue? I'm getting the exact same issue doing the upgrade from ePO 3.6.1 to 4.0 with SQL 2005 on remote server. Thanks!
Check the following:
Run cliconfg command on your epo server and check if TCP/IP and NetBIOS are activated; also check if TCP is in the first place.