We are doing a new installation of Sharepoint with SQL 2005. SQL
2005 is installed on a dedicated SQL server and the SQL services are
running under Local system. A separate instance has been created to
hold the databases.

On the Sharepoint application server, we have installed sharepoint
2005, then applied WSS SP2. After that completed, we applied
Sharepoint SP2.

Next we set up the application account which will run the Sharepoint
services. We get stuck on the configuration screen to connect to the
database.
We keep getting the following error.
"Error accessing database. Verify that the database server name and
the instance name (if present) are correct. Also, ensure the
configuration database administration account has sufficient
permissions on the server or instance and the service corresponding
to your SQL Server instance is running."

SQL is listening on the Database server on port 1647. we can
successfully telnet to the port from the Sharepoint application
server.
We can also successfully connect to a test DSN from the Sharepoint
application server (using the account under which the
Sharepoint services will run).

Any ideas on where we are going wrong?