I have been getting this question a lot recently, so I decided I should probably blog it.

When you install Windows SharePoint Services 3.0 using the published document from Microsoft, Windows SharePoint Services is set up as a stand-alone server.  This configuration results in Microsoft SQL Server Embedded Edition (SSEE) being installed as the SharePoint v3 data source.

For SBS Premium customers who want to use their version of SQL Server as the data store for SharePoint v3, you need to deviate from Microsoft’s published installation document.  Specifically, on page 7 under step 4b select “Front-End Server” instead of “Stand-Alone Server”  This will result in the setup process not installing SSEE on the server. 

When you run the SharePoint Products and Technologies Configuration Wizard after the install finishes, you will be given the option of either joining an existing SharePoint farm, or creating a new farm.  Select to Create a new SharePoint Farm, and you will be able to specify the SQL server instance you want to use as your data store.  The wizard will then complete the SharePoint configuration and you will then be running SharePoint 3.0 with a full SQL data store instead of SSEE.