I recently encountered an error when trying to add a domain to an ArcSDE database. I have attached a screen shot of the error message. It appears that there is a problem connecting to the SQL Server database but I'm not sure what is happening since things were working fine a few days ago.
It looks like there is a lock on one of the feature classes that you are trying to apply the domain change to. Verify that there are no other connections/locks on the SDE GDB and try to update the domain. Check to see if any map services are using that SDE database.