Are you using the express or developer edition?
As the message says, the problem could be caused by the fact that these editions do not allow remote connections by default.
This is what is needed to allow remote connections:
– Enable remote connections on the instance of SQL Server that you want to connect to from a remote computer.
– Turn on the SQL Server Browser service.
– Configure the firewall to allow network traffic that is related to SQL Server and to the SQL Server Browser service.
A detailed explanation on how to do that, is found at this page: How to configure SQL Server 2005 to allow remote connections.