my first thought is that the password you are providing for the 'sde' user (geodatabase administrator) isn't working. If the sde login already exists on this server, the password you provide must match that of the existing login. If the sde login doesn't already exist and the tool creates this login, then the password must meet the password policy being used by SQL Server. You can find more information on the password policy here: http://msdn.microsoft.com/en-us/library/ms161959.aspx
This is something be design at the moment.
You can suggest a change in future release at the following site:
Its a great site with many wonderful ideas, which the ESRI team looks at for implementing in future versions.