This is all so new to me Imar.
After countless googling I am up and running perfectly!
I un-installed everything SQL, re-installed SQL Server Express 2008 with Tools(ran into a little problem during installation, you need to download and install Visual Studio 2008 Service Pack 1 (SP1) before you install SQL Express 2008 with Tools) after that, everything went perfect.
This problem has been haunting me for 2 weeks!
Hopefully everything will go smooth as work thru the book, as long as I set up SQL correctly.
I am able to connect in SQL Server Management Studio 2008 with (local)\sqlexpress and windows authentication, I think I'm good to go.
Thanks Imar for all your fast replies with much needed help for this newbie!