Hi Thomas,
Actually second issue was authentication mode used for the SQL Server express instance( I'm using SQL Express for workgroup and enterprise GDB testing). Default is Windows authentication, and I forgot to set to the mixed mode. Shame on me.
Probably additional test needs to be included in the GP tool to test if SQL server authentication is enabled, before creating GDB with SDE based authentication, and more meaningful & user friendly error messages for beginner DBA�??s. Everyone should be interested to reduce call volume to support 🙂
Best Regards,
Vytautas