Unable to start sdeservice for Sql Server 2008 R2 Standard, Windows, 10.1

Having problems getting an SDE Service started.
Environment: Windows 7 64 bit, Sql Server 2008 R2 Standard, Desktop/Enterprise SDE on 10.1
Did the following steps:
1. Ran Create Enterprise Geodatabase:
Platform: SQL_SERVER
Instance: <Machine Name> (but the instance is MSSQLSERVER so could this be wrong)
Database Administrator sa
Database Administrator Password: <DB password>
Checked SDE owned
Geodatabase Administrator sde
Geodatabase Admin Password: sde (but I later changed this to sde123
Auth File: C:\Program Files\ESRI\License 10.1\sysgen\keycodes

2. Made sure I have esri_sde set in my services.sde and my system services location.

3. Created the service:
sdeservice -o create -d sqlserver -p sde123
4. Registered the service:
sdeservice -o register -d sqlserver -r admin_database -v G
5. Listed the service
6. Connected to the database using ArcCatalog with my user sde. No problem. Also connected using Sql Server Management studio. No problem.
7. Started the service.

Errror (always the same error):
IDBInitialize::Initialize Failed
init_DB DB_instance_open_as_dba: -93
DBMS error code: 18456
Microsoft SQL Server Native Client 10.0: Login failed for user 'sde'.

Checked out: http://forums.arcgis.com/threads/736...vice+SqlServer
And another document on that error.