Cannot connect to Project Server through Project Professional 2003

[TTEL]

I have just installed Project Server and am having difficulty connecting to it with Project professional 2003.

I can access the Server using web access no problem but as soon as I open Project Professional 2003 I get a connection error:

Connection failed:
SQLState: '01000'
SQL Server Error:2
[Microsoft][ODBC SQL Server Driver][DBNETLIB]ConnectionOpen(Connect()).
Connection failed:
SQLState: '08001'
SQL Server Error: 17
[Microsoft][ODBC SQL Server Driver][DBNETLIB]SQL Server does not exist or access denied.

I am using MSDE instead of SQL2K - could this be the problem?

I am inclined to think it is a password/security issue and I am confused about all the passwords that are required.

I have tried reinstalling Project Server but the problem persists.

Please can anyone help - this is driving me mad!

Thanks,