SQL Service Account Permissions

I just set up a SQL 2005 Server about a month ago that we will be moving all of our scattered DBs onto. I basically set it up with the default settings and didn't touch anything special, until I tried to install Microsoft System Center Essentials 2007 in our environment. I had problems getting it to use our SQL server, and a forum post told me to change all of the service accounts for SQL to use the LocalSystem login. So here are my service accounts:

SQL Server Integration Services
- NT AUTHORITYNetworkService
SQL Server FullText Search (MSSQLSERVER)
- LocalSystem
SQL Server (MSSQLSERVER)
- LocalSystem
SQL Server Analysis Services (MSSQLSERVER)
- LocalSystem
SQL Server Reporting Services (MSSQLSERVER)
- LocalSystem
SQL Server Browser
- LocalSystem
SQL Server Agent (MSSQLSERVER)
- LocalSystem

So Sandisk makes this software called CMC. It's for controlling their enterprise USB drives. And their software won't install. It errors out saying that it couldn't drop the database on our SQL server (but it doesn't exist). If I make an empty DB by the same name, it sees it, and then errors out anyway. I am using the SA login for testing (I was using a purposed SQL account before) so I don't think it's a rights issue. Sandisk says it should work, and they suggested I use SQL server express. But we run VMs, and running SQL server in another VM is going to use more of our memory pool. Plus we want centralized backups and all that.

Do my service account logins have anything to do with it? Can someone tell me what these should be set to by default so I can change them back?

Here's a trace I did when I tried to install the software:

-- network protocol: TCP/IP
set quoted_identifier on
set arithabort off
set numeric_roundabort off
set ansi_warnings on
set ansi_padding on
set ansi_nulls on
set concat_null_yields_null on
set cursor_close_on_commit off
set implicit_transactions off
set language us_english
set dateformat mdy
set datefirst 7
set transaction isolation level read committed

set implicit_transactions on
go
drop database [CruzerDb]
go
IF @@TRANCOUNT > 0 ROLLBACK TRAN
go

And here's more info if needed:

Product Version
- 9.00.3042.00
Edition
- Standard Edition
Server Collation
- SQL_Latin1_General_CP1_CI_AS
Is Clustered
- No
Is FullText Installed
- Yes
Is Integrated Security Only
- No
Is AWE Enabled
- No
# Processors (used by instance)
- 2