"Failed to connect to the database server. Verify connectivity and rights for the configuration account and try again."
On a project I was recently working on we ran into this error message when configuring SSO in SPS.
Well ... after much hair pulling ... we found that we were not alone. There are a couple of posts from people on the net about workarounds that may or may not work (they didnt for us). I also found another MS consultant working with another customer who was having the same problem.
It is funny how problems look like one thing on the surface ... but are totally related to something else under the hood. As it turns out ... this problem is due to Windows Installer 3.1 that happens to be installed when you apply Windows Server 2003 SP1 !
The problem is fairly easily resolved however ... by manually tweeking a registry entry.
Find the ImagePath registry entry at the following location:
Remove the quotation strings from around the the ImagePath value ... and away you go.
The result of all this is that there is currently a KB being written that will outline the problem and the steps to fix it.