Argh. The default MSDE configuration disables SQL Server users and passwords - leaving just Windows authentication. Soo.... if you check that little box in the ODBC configuration, it does nothing and you get an error message upon testing/using.
Specifically, this was my error message when trying to open tables with Access:
"Not associated with a Trusted SQL Server connection"
See this to fix this:
Without Enterprise Manager, you need to do change this setting IN THE REGISTRY. Fun.
HKLM\Software\Microsoft\MSSqlserver\MSSqlServer\LoginMode - 2=mixed mode
If you knew this beforehand, you could enable the authentication mode in the setup.ini file by adding: "SECURITYMODE=SQL"