We'll be updating our Configuring a Remote Instance of SQL Server topic very soon with some new information, as noted below - feeback welcome.

Configuring the Remote Instance of SQL Server

On the remote instance of SQL Server that you specify during Setup:

·         Enable remote connections.

Note   By default, Microsoft SQL Server 2005 Express Edition, Microsoft SQL Server 2005 Evaluation Edition, and Microsoft SQL Server 2005 Developer Edition are configured to allow only local connections. For more information about these configurations, see SQL Server Books Online (http://go.microsoft.com/fwlink/?LinkId=98779).

Do one of the following:

  •  Assign the instance its own TCP/IP port, and then connect explicitly to that port.
  •  Turn on the SQL Server Browser service.

Important   Turning on SQL Server Browser allows connections from the Internet to your computer. For security purposes, you might want to leave SQL Server Browser off on computers that are directly connected to the Internet. For more information, see SQL Server Books Online. By default, the SQL Server Browser service is disabled in SQL Server 2005 Express Edition.

·         The SQL Server must running with the Local System account. If is running with the Network Service account or a domain account, you must create a Service Principal Name (SPN) for the SQL service as described in article 811889 in the Microsoft Knowledge Base (http://go.microsoft.com/fwlink/?LinkId=88057).

The issue arises if you install with a remote instance of SQL, and the instance starts under a domain service account instead of network service.  This causes VMM to fail to connect. If you then start VMM service with a network service account instead of local system, the SQL connection works but other things (like P2V) fail.