Vista - SQL Express On Virtual PC 2007

I have an application that uses SQL express for it's data logging. I am
unable to restore a backup unless I change the SQL mode to local system
rather that NTAUTHORITY\NetworkService, due to a login error 5.

The application runs once, and when I restart the VPC it fails to work
saying it can't connect to the server.

The correct services are running and it works normally on a standard XP PRO
install. The manufacturer previously used MSDE but as this is now obsolete
they have migrated to SQL Express, but haven't yet tested it under a VPC.

I have had the same problem with Virtualbox by Sun, which points to either
the SQL install or the software itself.

I am using Win XP Pro on my VPCs.

Thanks,

Jon