This was spawned off of the other so-called "Install Infinite Loop" on the database install step.  So I'm posting in a couple of locations...

Just got it running myself (using the "Auto" feature.) 

Three things that helped:

1) Extracting the zip file on the server itself.

2) Deleting the entire directory and replacing it with fresh files on each failed attempt.

3) formatting the connection strings thusly:

<connectionStrings>
    <add name="SiteSqlServer" connectionString="Server=.\sqlexpress;Database=dnn;uid=user;pwd=pass" providerName="System.Data.SqlClient" />
  </connectionStrings>
  <appSettings>
    <add key="SiteSqlServer" value="Server=.\sqlexpress;Database=dnn;uid=user;pwd=pass" />

(very important not to tack an extra semicolon on the end of the connectionString.)

Hope this helps,

-Jeff