I googled the error and found this page
 
http://social.msdn.microsoft.com/Forums/en-US/sqldatabaseengine/thread/0a58d127-f532-44f1-8507-f9131228b5c1
 
Looks like you might need to check your named pipes setting. Enable the Protocols "Named Pipes" and it should work.
 
Here are some remarks they had
Quote:
Not sure if you have resolved this or not. I had the same error trying to connect to a new SQL Server 2005 installation with the management studio from a remote machine and discovered that the named pipes protocol was diasabled in the SQL Server network configuration protocols. I enabled it and restarted SQL Server and the problem was resolved.
Good Luck
Lane