Sorry the delay in getting back to you. Unfortunately work happened and wouldn't stop happening!
Anyway if memory served I had to set myself up as a dbo (database owner) for the toolset's database but we'll check a couple of things first to ensure you have a database and its running first ...
If the toolset installed (i.e. you didn't get any big scary warning during the installation like the ones you are seeing now) then you should already have SQL Server Express 2005 installed. If so you don't need to reinstall it. We can confirm it easily (and to ensure it is running): bring up Services console (start > run > services.msc), and look for a service called SQL Server (BWDATOOLSET).
If you don't have this service then it means the toolset's database hasn't installed. You probably want to uninstall the toolset, try reinstalling and it paying close attention to any messages that pop up. The normal installation will install the editor and then install SQL Server Express 2005. If you encounter a problem screenshot it or note the details and let us know.
If do have this service installed but it's not running then (if we are lucky this is your only problem): simply right-click on it and select the Properties menu option. In the middle of the General tab you should see a drop down labelled Startup type; ensure this is set to Automatic, then click the Start button. Once the service has started click the OK button to save your changes, close the Services console and try running the toolset again. If the toolset starts, connects and you can see modules you're golden, if not keep reading ...
If the service is installed and running but you can't connect to the database then it's probably a user rights/privileges issue. To fix this you'll need to download Microsoft SQL Server Management Studio Express (MS SSMSE) and make your normal Windows log in a database owner for the toolset. I believe if you follow steps 1, 2 (if required) and 3 in this post that will resolve that problem.
Let us know how you get on.