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:
<a href=”http://support.microsoft.com/default.aspx?scid=kb;EN-US;914277″>How to configure SQL Server 2005 to allow remote connections</a>