During my trek through Windows SharePoint Services I frequently hear about this error message. I like to refer to “Unable to connect to the database” as one of the dreaded errors of SharePoint. Why would I do this? Because in the majority of cases this is not a WSS problem. It comes from a variety of environmental factors which are difficult to diagnose and troubleshoot. Rather than get into a philosophical debate on the how or why of WSS error reporting in V2 it’s better to just list the causes that I know about.
I am certain there are other possible causes. The point is that many of these items are beyond the control of SharePoint. However, I am very pleased with the work the WSS Dev team has done with Beta 2 of V3. Many of the items listed above are caught and reported. I encourage you to try it for yourself.