The following article describes how to configure MSDE and MS SQL Server [2005] servers to accept SQL Server authentication.
By default, when you install MSDE it is configured to support Windows authentication only. Windows authentication is usually not appropriate for web applications such as Enterprise Server, so you will have to override the default installation settings. Additionally, the setup program for MSDE has a bug, so even if you run the MSDE setup program with the parameter SECURITYMODE=SQL it will ignore this parameter and leave the security mode set to Windows Authentication only. As such, once you have installed MSDE, you will have to manually change the security mode for the MSDE Server by making some changes to the windows registry.