The quickest way to set up connection to SQL Server database from BusinessObjects is to create 32 bit System ODBC data source.
The most irritating drawback of this approach is that if there is an error in universe, it is not possible to see the real error message. For all kinds of errors, you will see the same message:
A database error occured. The database error text is: [Microsoft][ODBC Driver Manager]Statement(s) could not be prepared.. (WIS 10901)
A solution is to use OLE DB connection. In this case the error message will be more descriptive, e.g.:
First, you need to install Microsoft SQL Server 2008 Native Client.
Second, set up BusinessObjects connection to use SQL Server OLE DB instead of ODBC using the database parameters. Open connection (in Tools>Connections), click button Back, and select OLE DB as network layer, and set up the connection.