I had just recently upgraded to a Vista Ultimate x64 system with Visual Studio 2008, IIS 7, MS SQL Server 2005 and had the same problem. Even though I have SQL Server installed, I usually connect to an offsite hosted SQL Server where the database resides. Ultimately, all sites I build are hosted elsewhere and it's just easier to build the site on my system, but already use the hosted database.
IIS7 is by default configured to abort any connection after 120 seconds of inactivity. Well, as you're waiting for DNN to install, over 2 minutes will elapse while the database is populated. IIS7 dutifully cancels the thread.
To all the IIS7 gurus this may be old news, but I was just trying to get the web site up and running. IIS7 might as well be Apache for all I'm concerned, so this threw me for a loop at first.
Fortunately, this problem is easily corrected with IIS Manager. Bring up the "Advanced Settings" for the web site (right click on the site name in the Connections window, select Manage Web Sites, then click Advanced Settings):
Changing the Connection Time-out value to a larger value will correct the problem.
Of course, if your IIS host is shared, you may not be able to change the timeout values (you may beg your hosting provider to change it though). But, ultimately, you really should use a local SQL Server/database. Performance during installation and general use is just sooo much better.