Failed to create the configuration database. Invalid or loopback address error.

When setting up SharePoint 2010 I encountered the below error -

The SQL 2008 server I was using had a instance already set, up and running and was listening on port 1433. Since I did not have any other SQL servers I decided to set up a second instance on the box and assigned it to listen on port 1984. During the installation of SP 2010 after providing the db connection string I got the above error.
The way conn string is provided -  

Servername.FDQN\sqlinstance,Port Number
Example -  server1.xyz.com\testdb,1984

The way to resolve this error is first System DSN needs to be configured on the SP server. The below configuration is for 64 bit server. If you have 32 bit server you can go directly to Admin tools - Data Sources and set up the system DSN.

 

 

 

Again the server name can be FDQN like server.xyz.com\dbtest.

Select Client Configuration

 

Uncheck Dynamically det port and manually give the port number that was assigned.

So going back to the SP 2010 install now give the conn string as
server1.xyz.com\dbtest and that should resolve the issue. Make sure the id used to install SP 2010 and making this sql connection has dbcreator and securityadmin role on the db instance.