So, you`re trying to install SCOM 2012 Sp1 with a SQL Always On Group.. you get to the configure the operational database step of the setup and get following error:

Setup is unable to create database on SQL Server instance "your SQL Always On Instance" Please make sure that the current user has permissions to create database on the SQL Server instance specified.

Sadly enough, when you logon directly on the instance and try creating manually a new database on this instance it works.. so there are no permission problems.

Now, you cannot comprehend the evil behind this error message.

You have in the Installation Logs under OpsMgrSetupWizard.log following error:

Error:        :Could not create valid path: \\...: Threw Exception.Type: System.IO.IOException, Exception Error Code: 0x80070043, Exception.Message: The network

 

name cannot be found.

So, you should try installing this with the actual IP of the SQL Instance. Does the installer progress? If not, try the following:

http://blogs.catapultsystems.com/jcowan/archive/2013/03/21/needles-in-a-haystack-disableloopbackcheck-failed-installation-of-opsmgr-2012-sp1-databases-and-reporting-with-server-2012-and-sql-2012-sp1-over-hyper-v-and-esx-5-1-e1000e-vs-vmxnet3-networking.aspx

 

If replacing the SQL group name with the IP does work, this is by design in 2012 SP1 since the Always-On listener tries to access the hidden drive shares which, because of the WFC design,  it doesn't have permission to use.

Tip: *This was fixed in SCOM 2012 R2*

 

So as a further workaround you`ll have to proceed with the installation and install SCOM with the IP and then afterwards change the connection to the DBs to the SQL Cluster settings:

•         Rename the database server to the Group Listener name using the same steps as "How to move Operations Manager database" -> http://technet.microsoft.com/en-us/library/hh278848.aspx

•         Restart the System Center Management service

•         Stop the primary SQL service to force a SQL cluster service move.

•         Start the SCOM console to check.

 

Happy SCOM-ing!