If you are deploying lots of System Center products, then it’s not uncommon to use a single SQL server/cluster for one instance per component (Service Manager is a whole other ball of wax but I stay away from that game). This means setting up a remote SQL database for VMM. It’s no big deal, and it increases scalability for the truly large deployments. It also makes clustering VMM a realistic possibility – and that’s a must-do if you’re creating a cloud.
When at the above screen, the connection to the remote server to allow you to select an instance can freeze or fail if you have not configured the Windows Firewall of the remote SQL server. Configure the firewall, and away you go.
Note: the lazy and less secure method is to open the firewall completely. Don’t do that if you can help it.