Hi guys and thanks for starting this thread,
I have experienced the same problem -SQL Server Conn Error, but in my case I used windows authentication, and local system.
But the interesting part is that it only happened after I installed the XP Pro 64 bit (before I had 32 bit) and reinstalled VS 2005 and SQL developer version. While VS works fine I can't access or create SQL database because every time i click at server name combibox I get a blank field and the massage no Server connection. (without error type)
I tried to contact Microsoft technical support with regard to this question but they left me bewildered when they said that i had to pay 380$ for their help on this issue, what's unbelievable bearing in mind that XP 64 bit cost 215$. So if anyone can help or has experienced the same problem it would be highly appreciated.