I've been through a couple different workflows, all of which work on my Windows 7 machine with a clean install of the most recent rev of SQL Express 2008 R2 but not on the XP machine.
1.) Use GP tool Create Enterprise Geodatabase for my local instance.
2.) Create new database natively in SQL management studio, connect to it in ArcCatalog and then right-click on DB connection and select Enable Geodatabase
My gut feeling here is to uninstall/reinstall SQL Express on the XP machine. Experience tells me there is probably some configuration or legacy compatibility issue that will take me longer to troubleshoot than just toasting it and reinstalling.