Error: Could not create geodatabase schema. SQL Express 2008R2

I'm trying to enable an enterprise geodatabase on a local SQL Express 2008R2 database using ArcGIS 10.1. I keep getting the error:

Failed to insert a value to the geodatabase system table.GDB_ItemRelationshipTypes : Error (1)\
See the setup log in...blahblahblah
Could not create geodatabase schema.
Failed to execute...

The error in the log file says:

[timestamp] ERROR Creating Geodatabase tables
, Error = -512
,EXT_Error = 8649
,EXT_ERROR1 = Microsoft SQL Server Native Client 10.0: The query has been canceled because the estimated cost of this query (465) exceeds the configured threshold of 300. Contact the system administrator.
,EXT_ERROR2 =

I'm inclined to just uninstall and reinstall SQL Express 2008R2 and restore existing databases. SQL was installed on this machine with an older version of ArcGIS...probably 9.3. The machine is still running XP Pro. I've got another machine running Windows 7 Enterprise, ArcGIS 10.1 and clean install of SQL Express 2008R2 and I don't have any issues there. I'm guessing there are some weird legacy compatibility issues?

Any ideas?