I recently got this error mucking with SQL. It wouldn't connect worth a darn. So I managed to find this simple concise blog entry that fixed it and so I feel I should mention it here.
http://blogs.msdn.com/sql_protocols/archive/2007/05/13/sql-network-interfaces-error-26-error-locating-server-instance-specified.aspx
For me, I just has to start the sql browser service. Woooo.....