Guys,
First of all, thanks for the advice... especially the MSDE comments.
I agree that MS SQL Server is probably a more powerful/faster/better product with more features. That it's not apples to apples to compare it to MySQL for big daddy applications. Our application is not big daddy and could easily be handled by MySQL, MSDE, and maybe even a simple custom text file based DB.
What surprised me is that MS SQL had such a restrictive license and that deploying it cost so much. The real point in the end is that if your doing simple applications you probably should start with something other then MS SQL server. MS has positioned this product for "Big Daddy" applications only.
There is even more to this saga.. We checked to see if it was OK to us MSDE on SBS. There are some confusing statements in the SBS licensing terms so we decided to ask. You can not use SBS Standard or Enterprise for applications where the user is not anonymous, this includes our application as gomez describes. If the user is identified, then you have to be using the full up Win 2003 server or that user must have a CAL. The exception to this rule is SBS Web Edition. If you use MSDE and SBS Web Edition then it's OK...
To answer johm... Yes it would be unwise to allow a user to access SQL directly. We know better then this. Our application handles the SQL server and provides a very limited service to the users.
So... We will try to deploy a SBS Web Edition server with MSDE as this should not require any significant changes to our application. I hope that this information saves others an almost heart stopping shock..