I've heard, from time to time, that MSDE cannot be used for distributed applications. This is not true!
I wasn't able to find any Microsoft Knowledge Base articles specifically for this, but I was able to find bits and pieces here and there, which I have combined here.
To enable the network libraries of your choice, run (TCP/IP and/or Named Pipes are a good choices):
Installation Drive/Program Files/Microsoft SQL Server/80/Tools/BINN/svrnetcn.exe
If you have access to SQL Server client tools, you have full administrative access to MSDE. If not, here are some useful registry settings:
To change the authentication mode, set:
HKLM\Software\Microsoft\MSSQLServer\MSSQLServer\LoginMode
to 1 (Windows Only) or 2 (SQL Server and Windows)
To change the audit level, set:
HKLM\Software\Microsoft\MSSQLServer\MSSQLServer\AuditLevel
to 0 (None), 1 (Success), 2 (Failure), or 3 (All)
If your application has a very light load, MSDE is a cost effective solution (free). The only limitation that I know of is that after eight concurrent queries, the optimizer turns off. Well, there is also the lack of administration tools.