OK, i think i figured out my problem - at least, i got past that error message and have completed the installation.
based upon further reading (wasn't feeling confident that i would get replies to my questions here), i figured it probably wasn't liking the fact that i had an already existing Website at the www root that i was trying to set up DNN in a Virtual Directory (sub-folder) of. it may have been confused with the Web.config file already in the www root.
i created a new sub-folder and moved all files and sub-folders (except the DNN folder) to it (basically removing my existing Web site).
rather than dropping and re-creating the SQL Server database, i went in and deleted all objects created by the failed install.
this should now let you run the DNN install over again when you go to the DNN site. if you are still getting error messages, you may not have deleted all of the SQL Server objects that had been created - drop the database and re-create it again.
i have to say that overall, the installation instructions are *not* clear and concise at all especially for a hosted environment with minimal administrative control available. then the various conflicting guides for various versions out on the Web further exacerbates the problem. more work needed here...