error after sql server 2008 sp1

After installing SQL server 2008sp1, I can't start my Project that has a User Instance DB in the project. connection string not changed.
Am at a loss what to look for.  I suspect some kind of security change or some switch that was reset during the sp update.  If I attach to the DB in ..\bin\debug and remove"UserInstance=true" from the connection string - it works.  So it seems related to mounting a local user instance.

Client exception:
{"Failed to generate a user instance of SQL Server due to a failure in starting the process for the user instance. The connection will be closed."}

Sql Error log:

2009-05-02 22:32:53.58 Server      Error: 17156, Severity: 16, State: 1.
2009-05-02 22:32:53.58 Server      initeventlog: Could not initiate the EventLog Service for the key '335289A1-FCB0-47', last error code is 2.
2009-05-02 22:32:53.58 Server      Microsoft SQL Server 2008 (SP1) - 10.0.2531.0 (Intel X86)
 Mar 29 2009 10:27:29
 Copyright (c) 1988-2008 Microsoft Corporation
 Express Edition on Windows NT 6.0 <X86> (Build 6001: Service Pack 1)

2009-05-02 22:32:53.58 Server      (c) 2005 Microsoft Corporation.
2009-05-02 22:32:53.58 Server      All rights reserved.
2009-05-02 22:32:53.58 Server      Server process ID is 4384.
2009-05-02 22:32:53.58 Server      System Manufacturer: 'Gateway', System Model: 'Gateway M680'.
2009-05-02 22:32:53.58 Server      Authentication mode is WINDOWS-ONLY.
2009-05-02 22:32:53.58 Server      Logging SQL Server messages in file 'C:\Users\William\AppData\Local\Microsoft\Microsoft SQL Server Data\SQLEXPRESS08\error.log'.
2009-05-02 22:32:53.58 Server      Command Line Startup Parameters:
  -U c:\Program Files\Microsoft SQL Server\MSSQL10.SQLEXPRESS08\MSSQL\Template Data
  -d C:\Users\William\AppData\Local\Microsoft\Microsoft SQL Server Data\SQLEXPRESS08\master.mdf
  -l C:\Users\William\AppData\Local\Microsoft\Microsoft SQL Server Data\SQLEXPRESS08\mastlog.ldf
  -e C:\Users\William\AppData\Local\Microsoft\Microsoft SQL Server Data\SQLEXPRESS08\error.log
  -c
  -K
  -S SQLEXPRESS08
  -s 335289A1-FCB0-47
  -w 60
  -T 1617
2009-05-02 22:32:53.89 Server      SQL Server is starting at normal priority base (=7). This is an informational message only. No user action is required.
2009-05-02 22:32:53.89 Server      Detected 1 CPUs. This is an informational message; no user action is required.
2009-05-02 22:32:53.90 Server      Perfmon counters for resource governor pools and groups failed to initialize and are disabled.
2009-05-02 22:32:53.91 Server      Using dynamic lock allocation.  Initial allocation of 2500 Lock blocks and 5000 Lock Owner blocks per node.  This is an informational message only.  No user action is required.
2009-05-02 22:32:54.03 Server      Node configuration: node 0: CPU mask: 0x00000001 Active CPU mask: 0x00000001. This message provides a description of the NUMA configuration for this computer. This is an informational message only. No user action is required.
2009-05-02 22:32:54.07 spid7s      Starting up database 'master'.
2009-05-02 22:32:54.81 spid7s      Recovery is writing a checkpoint in database 'master' (1). This is an informational message only. No user action is required.
2009-05-02 22:32:56.63 spid7s      Error: 5598, Severity: 16, State: 2.
2009-05-02 22:32:56.63 spid7s      FILESTREAM feature is not supported on user instances.
2009-05-02 22:32:56.63 spid7s      FILESTREAM: effective level = 0, configured level = 3, file system access share name = 'SQLEXPRESS08'.
2009-05-02 22:32:56.70 spid7s      SQL Trace ID 1 was started by login "sa".
2009-05-02 22:32:56.77 spid7s      Starting up database 'mssqlsystemresource'.
2009-05-02 22:32:56.80 spid7s      The resource database build version is 10.00.2531. This is an informational message only. No user action is required.
2009-05-02 22:32:57.29 spid7s      Error: 15466, Severity: 16, State: 1.
2009-05-02 22:32:57.29 spid7s      An error occurred during decryption.
2009-05-02 22:32:57.65 spid7s      The current master key cannot be decrypted. The error was ignored because the FORCE option was specified.
2009-05-02 22:32:57.69 spid7s      Error: 5602, Severity: 16, State: 1.
2009-05-02 22:32:57.69 spid7s      The service master key regeneration was successful.
2009-05-02 22:32:57.81 spid7s      Error: 5604, Severity: 16, State: 1.
2009-05-02 22:32:57.81 spid7s      The password regeneration attempt for SA was successful.
2009-05-02 22:32:57.81 spid7s      Server name is 'WILLIAM-PC\335289A1-FCB0-47'. This is an informational message only. No user action is required.
2009-05-02 22:32:57.81 Server      Server local connection provider is ready to accept connection on [ \\.\pipe\335289A1-FCB0-47\tsql\query ].
2009-05-02 22:32:57.81 spid9s      Starting up database 'model'.
2009-05-02 22:32:57.83 Server      Dedicated administrator connection support was not started because it is disabled on this edition of SQL Server. If you want to use a dedicated administrator connection, restart SQL Server using the trace flag 7806. This is an informational message only. No user action is required.
2009-05-02 22:32:57.84 Server      The SQL Server Network Interface library could not register the Service Principal Name (SPN) for the SQL Server service. Error: 0x54b, state: 3. Failure to register an SPN may cause integrated authentication to fall back to NTLM instead of Kerberos. This is an informational message. Further action is only required if Kerberos authentication is required by authentication policies.
2009-05-02 22:32:57.84 Server      SQL Server is now ready for client connections. This is an informational message; no user action is required.
2009-05-02 22:32:58.81 spid7s      Starting up database 'msdb'.
2009-05-02 22:32:58.92 spid9s      Clearing tempdb database.
2009-05-02 22:33:00.30 spid9s      Starting up database 'tempdb'.
2009-05-02 22:33:00.45 spid12s     The Service Broker protocol transport is disabled or not configured.
2009-05-02 22:33:00.45 spid12s     The Database Mirroring protocol transport is disabled or not configured.

After restarting the machine/server you need to have a look at SQL configuration manager, right click the running instance and make sure the correct account etc is being used/configured

vesuvius said:

After restarting the machine/server you need to have a look at SQL configuration manager, right click the running instance and make sure the correct account etc is being used/configured

staceyw said:

vesuvius said:

*snip*

Thanks vesuvius.  ID is LocalSystem which did not change, so don't think that is it.

I am experiencing same issue!

Nothing helps, SP1 is a crappy product!

staceyw said:

vesuvius said:

*snip*

Thanks vesuvius.  ID is LocalSystem which did not change, so don't think that is it.

I am experiencing the same issue!

I tried the solution here as well as deleting the folder
C:\Users\<User>\AppData\Local\Microsoft\Microsoft SQL Server Data\SQLEXPRESS

It did NOT solve the problem.

take a look at
http://social.msdn.microsoft.com/Forums/en-US/sqlexpress/thread/68d72001-6802-40f2-b76c-501a27293bcc

Uninstalling SP1 might solve your problem, for me it did!