Hi, I was also encount this problem just like you describing. After I checked my OS Application events checker, I found maybe my DB setting have something wrong. So I check the microsoft MSDN online, and finished the setting according by "visiting SQL Server by local identity user", I succeed. :).  the setting step are:

1.open start-> Microsoft SQL Server 2005-> SQLServer Management Studio(SQL Server2005)
2.Open the spot of DotNetNuke database you created just now
3.Open Security -> Users, and right-click Users Create a new user, and must input the "login name" is "your computer name\ASPNET"(windows 2000, xp) or "NT AUTHORITY\NETWORK SERVICE"(windows 2003), and the user name, I named DNNUser, you can pick another name. then press confirm create successful.

by the way, I use the integrated windows authentication way to visiting my DB. so if you adopt my way to exploring your DotNetNuke website, you should chang the web.config file the connectionstring and appsetting items, you should change "uid=;pwd=" to "integrated security=true". And finished you file permission according by installing guide, I think you could be end the problem.

Hope you success. :)

I'm using  SQLEXPRESS and Windows Authentication. I did Create a user "THOKOZILE-NB\ASPNET" and gave the user all the permissions.... Before creating the user i was getting an error ("Login failed for user THOKOZILE-NB\ASPNET"). Now there is no error... I can see the Installation wizard screen but i can't go next... when i click the next button. it just hangs..............