Please visit Kris's blog for detalied explanantion.
The brief summary
First you'll need to open up SQL Server Configuration Manager. Navigate to that in the menu like Microsoft SQL Server 2005 > Configuration tools > SQL Server Configuration Manager.
Double click, or right click and choose Properties, of the selected line and you'll get the properties window
You'll need to make sure that the Local system is selected.
The second part of the solution's to delete the following folder on your hard drive: c:\Documents and Settings\[user]\Local Settings\Application Data\Microsoft\Microsoft SQL Server Data\SQLEXPRESS(1). This folder's used to store information and apparently it messes up the proper working of SQL Express.