Could not connect to SQL.

When i am trying to create a new database project in VSTE DB Prof and say finish an error is thrown saying "WHEN CONNECTING TO SQL SERVER2005, THIS FAILURE MAY BE CAUSED BY THE FACT THAT UNDER THE DEFAULT SETTINGS SQL SERVER DOES NOT ALLOW REMOTE CONNECTION". I have checked all services and started all the required ones.I am also using a local connection, i am trying to connect to the database on my system.How to handel this error?

Use "Sql Server Surface Area Configuration" tool to allow Remote connection.