I am encountered same ploblem. I find a way out of this ploblem mentioned below.
server:windows server 2003
database : sql server 2000 standard edition
Don't create database with enterprise mangager.
If you make database with enterprise mangager,please delete it.
Then  use command porompt.
command line
logid:osql -U sa -P [your password] -S servername]
create database [your database name]
...
Without this ,I use 'full'  connction string like...
workstation id=[hostname];packet size=4096;user id=sa;data source=localhost;persist security info=True;initial catalog=[your database name];password=[your password]
and server mode make mix mode.
But last two is not neccesary,I think.
Please try again.
I am Japanese,so I am not good at English.
I am happy if you look ut my site.

http://www.synapsoid.jp/dotnetnuke/

http://www.synapsoid.jp/ghg/
But  these are Japanese site.....