I work on a helpdesk that supports a propriatary software product that installs MSDE vs 1.0 and upgrades MDAC to vs 2.7.
In some instances the install of MSDE will fail resulting in error mssg that install is unable to locate SCM.exe (even thought it successfully installed in newly created msde folder). What little support the developers have provided us, is that something is preventing the application from connecting to the sql server even though the server is the one and same machine.
As a method of troubleshooting we will confirm that TCP/IP is of course a installed protocol; we will run the cliconfg utility and create a TCP/IP network library alias with server alias as local machine name and server name pointing to either loopback of same machine or static IP with dynamically determine ports enabled.
Sometimes on reinstallation this will resolve the issue, other times it will not.
Additionally we will attempt to create a ODBC connection using the datasorces utility and when experiencing above issue often times cannot create a successful connection.
Unresolved issues tend to appear more on 98 and XP boxes with little occurance on NT or 2000 boxes.