SBS 2008 and WSS 3.0 failure

I've got a client running SBS 2008 that acts as a file server, SQL server 2005 (used for Lawbase database), Exchange, DNS, DHCP, and WSS 3.0 server.  WSS has failed and become corrupted which is where I entered into the picture.  WSS could not be removed through the normal route and had to be ripped out by the roots using various methods suggested by searches on experts-exchange.  Exchange didn't like it very much as some of the services failed to load initially after the reboot but after messing around with it for a bit I was able to get them running again.  Just for grins I tried un-installing the remnants of WSS using Programs and Features and that worked too, then I was able to reload it again, however this is where the problem comes.  On the second step of the reload where the WSS install tries to create the database and connect to it the credentials fail with the error message that the credentials/permissions are incorrect.  I've tried using the Administrator account and also creating a new account with all the SQL permissions active (although I may be missing some other necessary permissions), created a new database, even installed in Basic mode but no joy.

Searches indicate others have had this problem too in similar situations but I haven't found any solution that works.  I've got two questions; 1)  what else can I try? and 2)  being that this a single point of failure server situation would it be better to buy another server and install WSS 3.0 on it?  I'm unclear on what architecture should be sued from Technet, some discussions I've seen on news groups indicate it's not good to run WSS on the same server as Exchange using SBS 2003 and WSS 2 or 3, is this still the case with SBS 2008, Exchange 2007 and WSS 3.0?