I did a quick search and found a blog I wrote over six years ago where I got this message and tracked it down to a corrupt installation of the GP 9 server components. Well, server components no longer exist as a separate thing, but it was possible something had happened to the install.
However, after uninstalling and reinstalling the problem still occurred:
Microsoft Dynamics GP Utilities
Install of database SMTWO failed! Microsoft Dynamics GP Utilities will now shut down.
This environment is using a shared SQL Server, so I’m using SMTWO as the database name for Fabrikam rather than the standard TWO, but I have used alternative names many times without issue.
I am aware that you can’t use reserved words for database names; this is not a Dynamics GP restriction, but rather a SQL one itself. I also tried SOTWO and got the same error and neither of these appear to be reserved names.
When I tried TWOSM, the install went through and worked without any problem, so there is obviously some sort of problem related to the two names I tried.