Hi Vince,
Thanks for your help. The ArcDesktop (ArcCatalog) I was doing the upgrade with was 10.1. The SDE file was at 10.0. We did uninstall ArcSDE 10.0 after stopping the SDE services.
We did not install ArcSDE 10.1. We are connecting to everything just fine.
Thanks so much for your help!
Janie