I finally setup my home computer to develop Flex 2 applications that communicate with SQL, but not without some initial frustration. I installed the developer copy of ColdFusion MX 7 with the 7.02 patch that enables remoting with Flex 2. I also installed SQL 2005 Express Edition (which is now free) with the SQL Server Management Studio Express (you need this piece to create tables, its now separate from the SQL Manager).
It was a huge pain setting up the data source in ColdFusion Administrator, it seemed nothing would work. It turns out that SQL 2005 does not have TCP/IP connectivity enabled by default. I searched the web and found some very helpful blog posts on the subject by Ben Forta, Matt Woodward, and Phil Duba. I thought I would write about it so that others can avoid the same difficulties.