Sorry I did not get to this but glad you fixed it.
The reason for the error I think was there was a registry setting from the old install pointing to the DB so the installer thinks MSDE is already there. the key is under HKLM/Rapport.
Also, do not put WSI and WDM on the same PC and they share the same imaging Wizard files so one will over write the other. For small setups I put WDM in a VMware machine on Windows Server (VMware server is now free on the VMware site) and WSI on my notebook. You could also put WSI in a VM and just start it when you need it.