Unfortunately the Windows Internal Database (WID) that is default for things like WSUS, SharePoint Services 3.0 and other MS products and roles does not allow TCP/IP connections. In fact WID does not allow for remote connections at all. It does allow local Name Pipes though.
If you install SQL Server Management Studio you can use this string in the server name field to connect to the WID MICROSOFT##SSEE SQL instance on the local computer:
Now you change the DB file locations or even shrink the DB. I have not tried to import or setup any legacy DTS packages.
Useless trivia: the SSEE in the instance name stands for SQL Server Embedded Edition