arcgis desktop - Add Spatial Database Connection fails?

I created a Database Server (SQL Express 2008.)

I created a "New GeoDatabase..."

I double-click on "Add Spatial Database Connection."

I fill out the dialog and change the transactional version.

I press the "Test Connection" button. The "Test Connection" message box says, "Connection succeeded."

I press the "OK" button twice and... NO connection is created.

I cannot create a new spatial database connection.

(I searched for this on the ESRI forum and, of course, the question is there but as usual there is no answer.)

Has anyone else come across this problem?