Hi Alan thanks for your post. I manage to install DNN 4.8.1 (Install) on my server. After 3 days of reading some post and testing. It was not on web.config thats causing the problem as Im doing fresh install. It was my SQL 2000 server. To make things clear and for those who have the same error, here are some tips that I've checked.
Previously done : Installing DNN 4.8.1 on my testing server (W2K3 server, IIS6, MS SQL Express ; both in one server) works perfectly. I tried this 3 times just to double check that the scripts on DNN are working perfectly. After 3 trials of successful installation, I confirmed that DNN has no problem on installion.
Simulation to new server : (W2K3 server + IIS 6 on server A & W2K3 + MS SQL 2000 on server B ; testing server running on Pentium 4). works perfectly. I tried 3 times also just to confirm that I might have done something special to get the installation working.
Catch: 2 things I realized why I am failing to install DNN 4.8.1 is because of our SQL 2000 server. (1) everytime I create a new database, it gives me Japanese unicode collation (maybe due to my regional settings and my keyboard settings since Im working in Japan). This does not work with DNN installation. (2) I tried creating new database using Latin1_General_C1_AS which also does not work. I wonder why I could not choose Latin1_General_CPI_C1_AS... it become clear to me that there should be "SQL_" in front. So when I choose SQL_Latin_CPI_C1_AS, my installation became successful.
So for those who are still having the same error please double check your database collation.