In the Server dropdown you need to select the named instance of MSDE which was installed. I believe that when Sharepoint installs MSDE it installs it as a named instance which won’t show up by default in the server manager. It’s a known issue with the server manager that comes with SQL 2000.
I would recommend using the Services icon in the Administrative Tools window to start and stop the services. The server manager is removed starting with SQL Server 2005.