I am having the same problem with SQL 7.0 SP2.  I have had this issue open
with Tivoli support for 2-3 months now with no resolution.  I did install
SQL 7 with different character set.  Version 1.1 work fines.  I was never
able to get 2.2 to work at all.  So far this is the only fixtest they have
had me try (did not work for me...):

I received a response from our development team requesting that you try
installing fixtest IC29849_01.exe for TDP for SQL v2.2. According to them,
it fixes some character set/language problems with SQL Server and so could
be related to the problem you are currently experiencing. I have attached
both the readme file and fixtest for you to install. The  readme will
provides the following information regarding what APARs are fixed:
****************************************************************************
********
The following problems are fixed in this FIXTEST:

IC29849

   When using the TDP for SQL 2.2 GUI or command line one may have
   encountered this error:
      ACO5422E Received the following from the MS SQL server:
      SQL-DMO  The name 'Unicode locale ID' was not found in the
      ConfigValues collection.  If the name is a qualified name, use
      to separate various parts of the name, and try again.
      Microsoft SQL-DMO (HRESULT:0x80045510)
   The problem occurred with any SQL Server 7.0 sort order that is case
   sensitive, such as binary or dictionary order. A query SQL or any
   backup command would fail. Both the GUI and the command line would
   not work.  SQL 2000 does not experience this problem.

IC30018

   The /relocate option on the command line does not process
   logical file names that are transaction log files.
   When used with the /partial option, it would not process logical
   file names that were not members of the /groups or /files specified.