SQL server 2000 datasource

I have sql server 2000, and CF 7.0 running on server 2003 standard R2.
I set up sql server to use windows authentication, and created a system user name SQLService for it to use.
Everything is all on the same machine, and I just want to make a datasource. . . .
I have tried about 30 different combinations of things and get the same error every time. . . .:

Connection verification failed for data source: dragon1
java.sql.SQLException: [Macromedia][SQLServer JDBC Driver]Error establishing socket. Connection refused: connect
The root cause was that: java.sql.SQLException: [Macromedia][SQLServer JDBC Driver]Error establishing socket. Connection refused: connect

I put in 127.0.0.1 for the server, port 1433
And I tried putting in the SQLService username and password, as well as my administrator username and password, and got the same previous error on both. I tried using localhost and (local) for the server, to no avail.

Can someone tell me what im doing wrong?
Is this a default error message that always shows up, or would you get a different error message if it was just the wrong username and password?

Any information would be helpful!

Thanks!
Mike