Sql Server 2008 - Cannot connect to local default instance
re-install sql server. I had the same problem and then noticed that instead of installing a local instance I installed a named instance ( that just so happened to be the same name as a local instance). For some reason there is a difference between a local instance with the exact same name as a local instance and when you actually choose local instance.
Try your hostname followed by the instancename, for instance PC\SQLEXPRESS