Hi Jake,
The excellent advice above should help you overcome that 11501. Once that SEPM is successfully using its MS SQL database, do spend a little time ensuring that it is configured well. Properly configured and maintained, when running on adequate hardware, MS SQL can serve as a brilliant high-performance DB for the SEPM.
First: make sure that you have MS SQL 2005 SP3. Many people are still using SP2, though Microsoft has retired that version.
Make sure the client components on the SEPM are the same SP as what's on the SQL server itself. Upgrade them to SP3, too!
How to exclude MS SQL files and folders using Centralized Exceptions
Create database maintenance plans in MS SQL Server 2005 using SQL Server Integration Services (SSIS)
Improving SEPM Performance with the SEM_GETUSN Stored Procedure
Run Microsoft's free "SQL Best Practices Analyzer" every so often to ensure the SQL server is healthy
Please do keep the community forum up-to-date with your progress!
Thanks and best regards,
Mick