You re connection failing suggests that something else is wrong. Based on the error, the
most likely cause is that you mis-typed the server name. SQL Express installs by default the instance name SQLEXPRESS, so your server name would be <machinename>\SQLEXPRESS, try to put host (computername/SQLEXPRESS) like this in ODBC configuration.
If this not helps check your system administrator password reffer to How to verify and change the system administrator password in MSDE or SQL Server 2005 Express Edition. But i think you just need to uninstall SQL then install it with instance name MSSQLSERVER, also dont forget to enable TCP protocol for the server using SQL Configuration Manager. If you are using old MDAC driver in ODBC
switch to Native Client driver.
P.S. MDAC ODBC connection go through TCP, even for local connection.
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