What version of SQL is required?
You can use Microsoft SQL Express 2005 for small installations. For larger environments, you need full SQL 2005 with SP1/SP2. SQL SP3 is not supported in DMC 1.0. The database can be installed locally on the same box as DMC or remotely. Full SQL is suggested for best performance. As a rule of thumb, if you are managing more than 500 devices you should be using full SQL Server rather than SQL Express. The Configuration and Optimzation Guide (whitepaper) has more infomration on this.