I’ve seen so many problems with customers installing BizTalk Server 2004 and having the SQL Server on another physical machine, it’s not a problem with BizTalk Server per-se but in my experience mainly down to the security lock down of Windows Server 2003 out of the box.

Most of the problems seem to be down to MSDTC not being enabled and ConfigFramework not being too helpful with its errors (always check the install log). 

This paper is definitely worth reading and basing your installation on – I’ve seen a few customers go through pain and produce a paper just like this, so save yourself some time!