Error when trying to create new databaase using SQL Server

Hi,

I have installed MS SQL server and I'm trying to create a database using the Web Matrix Project. I'm doing the following:

1. Click the Data tab in the Workspace pane.
2. Click on "Add Database Connection"
3. Select "SQL Server/MSDE Database" and click OK
4. Enter the following information:
server=localhost
Windows authentication is on
Database=somename

Click Ok

After I do all this, I get the following error:
Unable to connect to the database
SQL server does not exist or access denied.
ConnectionOpen (Connect()).

The SQL Service Manager is running with the option "Distributed Transaction Coordinator" displaying on Services. (I'm new to SQL server).

What could be causing this to happen?

Thanks a lot."Add Database Connection" is for connecting to an existing database...

use SQL Enterprise Manager to create the database first.|||1. Check if the DNS entries for the database servers are correct. These could be one of the reasons.
2. You must also see if you have sysadmin previledges to create a database.

These are some of the points that come to mind.