[Today's post comes to us courtesy of Damian Leibaschoff]

Windows Small Business Server 2008 Premium includes SQL 2008 Standard Edition for Small Business (http://www.microsoft.com/sqlserver/2008/en/us/small-business.aspx). This version is feature by feature the same as SQL 2008 Standard with the difference that it must be installed in an Small Business Server domain or, if purchased separately, an environment with certain characteristics. But, what does that mean?

SQL 2008 Standard for Small Business is supported for installation in a small business domain,
which includes installing on one of the following Windows Server® 2008 editions:

•  
  • Windows® Small Business Server 2008
  • Windows Server® 2008 Standard (must be configured in a
    small business domain configuration).  To install this product on Windows Server 2008 Standard edition, the server must be joined to a Small Business Server 2008 domain or a domain that has Active Directory configured in the following way:
    • It must be joined to a domain where a single server in the domain must contain all the flexible single master operations (FSMO) roles and is the root of the Active Directory forest,
    • The domain cannot have trust relationships with any other domains,
    • The domain cannot have any child domains, and
    • The sum of user and device licenses in the domain cannot exceed 75.
    • The customer may not run instances of the server software, separately licensed or otherwise, at the same time in another operating system environment within the same domain.

If the check fails, you will see the a failed check in the "Operating system supported for edition” topic.

Clicking in the Failed status shows the following message:

---------------------------
Rule Check Result
---------------------------
Rule "Operating system supported for edition" failed.
This SQL Server edition is not supported on this operating system. See SQL Server
Books Online for information about supported operating systems for SQL Small
Business Server edition.
---------------------------

A few other considerations:

• The SQL setup must be run while logged in to the domain with valid
  domain credentials. The user needs to have domain administrator and local administrator rights.
• Read the following documentation for installation and downgrade rights in Small Business Server 2008:
  • Using SQL Server in Windows Small Business Server 2008 Premium Edition
    http://technet.microsoft.com/en-us/library/cc794697.aspx

For more information on troubleshooting this issue, see this article: http://blogs.technet.com/b/sbs/archive/2010/07/21/how-to-diagnose-quot-operating-system-supported-for-edition-quot-pre-requisite-errors-while-installing-sql-2008-standard-edition-for-small-business.aspx