As far as I know, to run an SQL statement you would have to already be connected to an SQL Server using some credentials. The issue you described involves the installer cannot connect to an SQL Server with the given credentials.
If I am mistaken, can you please specify what is the statement you used to connect to an SQL Server with the same credentials?
In my last post, I suggested an SQL Management tool like the one from the following article:http://msdn.microsoft.com/en-us/library/ms174173.aspx
The idea is to assure that with the credentials used in the installer, you can connect to the SQL Server using another tool, thus they are correct.
All the best,