Requirement of SQL Server 2008 The software I am installing requires SQL Server 2008. I have SQL Server 2008 R2 Express Version. I am having problem in the setup and finally I am arriving on the conclusion that my SQL Express can be the problem. However I am highly skeptical.

I have asked the vendors and they we cannot confirm if their software works with the Express version. 

Have you ever run into a problem where a product will work with full version (of Database) and not a free version?

Here is the Limitation of SQL Server 2008 R2
The following are the limitations of SQL Server Express:


4 GB max database size (10 GB for 2008 R2)
Single CPU socket
1 GB of RAM
No SQL Server Agent service


When you say you are having a "problem in setup", what is the problem?  The only thing in the above limitations I can think would error out is if you tried to restore a database that is greater than 4 GB (or 10 GB for R2), or if the setup application is trying to do something with SQL Server Agent.

Conversely, the setup application could potentially be just doing a basic check on the edition of SQL Server (through @@version) and then bombing out when it finds Express.  Hard telling not knowing your specific issue.