I recently saw the above error on a SharePoint 2007 install of a test system. Reading a few blog posts, it seemed that most people were reporting the error as an issue when there was a problem with communication between the SharePoint server on which the wizard was being run and the domain controller it was connecting to as its logon server.
My machines didn’t seem to have any issues talking to each other however. Just to make sure, I changed them both over to a private virtual network, but that didn’t seem to help at all.
After a bit more rummaging, it turned out that the batch file I had used to create the users I needed for the SharePoint service accounts on the domain controller hadn’t created the ‘user@domain’ format of the user account correctly.
Recreating the users manually immediately solved the problem and the wizard ran successfully.