When attempting to install SQL Server 2008 RTM or SQL Server 2005 RTM/SP1/SP2 on Windows 7 RC, you will receive a warning dialog stating that SQL Server has known compatibility issues with this version of Windows.  Since SQL Server is redistributed by Visual Studio, installations in which the user selects to install SQL Server along with Visual Studio will be affected.  The issues that trigger the compatibility warning have been fixed in SQL Server 2008 SP1 and SQL Server 2005 SP3.

The recommended workaround is to install Visual Studio with SQL Server and then upgrade to SQL Server 2008 SP1 or SQL Server 2005 SP3 using Windows Update.  You can also choose to install SQL Server 2008 SP1 before installing Visual Studio. 

The steps below are shown for installing Visual Basic 2008 Express Edition with SP1 plus SQL Server 2008 on Windows 7 RC:

1.       Download Microsoft Visual Basic 2008 Express Edition with SP1 from the Express download page.

2.       During setup, make sure to select “Microsoft SQL Server 2008” from the “Optional Components” page.

3.       As soon as SQL Server 2008 installation begins, you will receive a compatibility warning dialog.

4.       Select Run Program to continue the installation.

5.       You will then be presented with a second compatibility warning dialog when running “setup.exe”.  Select Run Program again.

6.       After installation has completed, launch Windows Update.

7.       Select Check for updates in the left-hand pane.   

8.       Under the optional updates, you should see a checkbox for “Microsoft SQL Server 2008 Service Pack 1”.

9.       If for some reason, you don’t see “Microsoft SQL Server 2008 Service Pack 1” listed as an optional update, please go here to download the service pack.

10.   Check the box next to the entry and select OK.   

11.   Windows update will then install SQL Server 2008 SP1.

12.   Once installation has completed, you may be prompted to reboot.

More Links/Information

Download SQL Server 2005 SP3

Download SQL Server 2008 SP1

If you’re installing SQL Server 2005 Express (any Express edition) or SQL Server 2008 Express (Runtime Only) you can just download the SQL Server Express package containing the latest service pack. This may seem counter-intuitive if you already have some Express package, but installing it and then downloading and applying service pack is going to take longer than downloading a package already containing the latest service pack and installing it. Plus, in case of SQL Server 2008 Express, the service pack package is actually bigger than the SQL Server Express package, since the service pack is shared with all SQL Server 2008 editions.

Download SQL Server 2008 Express SP1

Download SQL Server 2005 Express Edition SP3

Download SQL Server 2005 Express Advanced Edition SP3

Download SQL Server 2005 Express Toolkit Edition SP3

If need to install SQL Server 2008 Express edition other than Runtime Only on Windows 7 RC and need to avoid the warning dialogs, you can create SQL Server 2008 with Service Pack 1 package yourself. Please follow steps described by Peter Saddow here.

Creating a merged (slipstreamed) drop containing SQL Server 2008 RTM + Service Pack 1

 

Source:http://social.msdn.microsoft.com/Forums/en-US/vssetup/thread/6a569376-4207-4184-a8a7-73d5168c787e