Problems creating a local SQL Server database from a WiX powered installation package

Today we ran into a issue where a WiX installer could not create a SQL Server database on the local machine of one of our developers running Windows XP Professional and SQL Server 2005. Before that we had successfully tested this on a machine running Windows Server 2003 and SQL Server 2005. We received the following error during the installation:

Error -2147467259: failed to create SQL database:database, error default: unknown error.

In the <SqlDatabase> element we tried setting the name of the SQL Server to ., (local), localhost, 127.0.0.1, and the computer name. After Googling for this I figured out that MDAC uses the Shared Memory Network Protocol when you use the name of the computer in the connection string and it will use the TCP protocol otherwise.

You can probably guess by now what the problems is. On the developer's machine we are running a copy of SQL Server 2005 Developer Edition and on the Windows Server 2003 machine a copy of SQL Server 2005 Standard Edition. Out of the box SQL Server 2005 Developer Edition does not allow remote connections. Doh!

How to configure SQL Server 2005 to allow remote connections