Can't create configuration database when SQL server resides on the domain controller and SharePoint on member server

Hello Community

   Using Sharepoint 2010 Server in a 2 server farm consisting of, dc Windows 2003 Server (named Server1) and member server Windows 2008 Server (named Server2), the SQL Server (named “SPTServer”) was installed on the Windows 2008 Server  for whatever reason, where Sharepoint 2010 Server was also installed at (this was a temporary configuration.

    Remarkably it worked! 

    The following excerpt of Powershell lines below is how  SharePoint would configure
SQL Server where  the SharePoint 2010  Server with Sharepont installed resided:

       $Pcredential = Get-Content C:\PasswordFile.txt | ConvertTo-SecureString;
    $UCredential= New-object System.Management.Automation.PSCredential
        "Server1\User1",  $Pcredential;
    $DBServer = "\\Server2\SPTServer";

   Now the Windows 2003 Server dc has been replaced with a Windows 2008 Server dc and the SQL Server is removed from the SharePoint 2010 Server and resides on the Windows 2008 Server dc.

   The problem is that there is an warning stating the SQL  Server should not be installed
on a dc.  But that is how a 2 server-server farm is supposed to be setup.

   However it breaks a SharePoint 2010 “rule” when installing so SQL Server only installs like this
only if you use the default named instance.

    Probably because installing on the dc breaks a rule when after SQL Server is installed
when you load SQL Server Management Studio the server name displays as “(local)” at
first then displays the actual Windows 2008 Server server name after you load SQL Server
Management Studio a second time.

    But the failure occurs when you try to run the Powershell script that use to create
SharePont 2010 Server successfully (when it was on the same server as SharePoint(Server2).

     Now when you run that  Powershell script SharePoint  can’t create the configuration database and the installation of Sharepoint 2010 Server fails. Below is an excerpt of the Powershell script and the error message when it fails (notice, now its trying to install on the dc not the member):

****  These lines attempt to create the SharePoint configuration database ********

    $Pcredential = Get-Content C:\PasswordFile.txt | ConvertTo-SecureString;
    $UCredential= New-object System.Management.Automation.PSCredential
        "Server1\User1",  $Pcredential;
    $DBServer = "\\Server1\SPTServer";
    $ConfigurationDB = "CConfigDb";
    $AdministrationDB = "AContentDb";
    $FAcct = Get-Credential -credential $UCredential;
    $Paraphrase = "Server1Phrase";
    $Paraphrase = (ConvertTo-SecureString $Paraphrase -AsPlainText -force);
    $Port = 8000;
    $Authenication = "NTLM";
    Add-PSSnapin Microsoft.SharePoint.PowerShell  -erroraction SilentlyContinue ;
    New-SPConfigurationDatabase -DatabaseName $ConfigurationDB -DatabaseServer
        $DatabaseServer `
    -AdministrationContentDatabase $AdministrationDB -Passphrase $Paraphrase `
        -FarmCredentials $ FAcct;

**** These lines are the error message produced when the above script executes ******

PS C:\> .\New-SharePointFarm.ps1
The local farm is not accessible. Cmdlets with FeatureDependencyId are not registered.
Configure Database
New-SPConfigurationDatabase : Cannot connect to database master at SQL server at \\Server1. The dist, or the current user does not have permission to connect to it.
At C:\New-SharePointFarm.ps1:20 char:28
+ New-SPConfigurationDatabase <<<<  -DatabaseName $ConfigurationDB -DatabaseServer $DBServer `
    + CategoryInfo          : InvalidData: (Microsoft.Share...urationDatabase:SPCmdletNewSPConfigur
   -SPConfigurationDatabase], SPException
    + FullyQualifiedErrorId : Microsoft.SharePoint.PowerShell.SPCmdletNewSPConfigurationDatabase

    The error message alludes to a problem with permissions but I created the servers and installed all of the software.

    What could be the problem?

   Thank you
    Shabeaut