the database is only created as database.mdf if you are using sql express, and the connection string has User Instance=True. SQL Express will then create the database and grant the necessary permissions (see http://msdn2.microsoft.com/en-us/library/ms143684.aspx and http://msdn2.microsoft.com/en-us/library/bb264564.aspx for more)

All other connection strings (i.e. sql 2000/msde 2000/sql 2005) do not automatically create the database, you have to do it manually.

Cathal