Setting up MS SQL Server for remote authentication

The same problems you are having right now I also had, while setting up my SQL Server for remote access.
Here are some links that I found to be pretty helpful:

http://www.datamasker.com/SSE2005_NetworkCfg.htm
http://www.carlj.ca/2008/01/09/the-user-is-not-associated-with-a-trusted-sql-server-connection/
http://www.alpesh.nakars.com/blog/howto-configure-sql-express-to-allow-remote-connections/