I have successfully created Azure VM with SQL Server 2008. I went ahead and added Web server roles. I also copied my working web application on VM by remoting in.
I can run queries from SQL Server Management Studio.
I made corresponding changes to my web config file but I get error
A network-related or instance-specific error occurred while establishing a connection to SQL Server. The server was not found or was not accessible. Verify that the instance name is correct and that SQL Server is configured to allow remote connections. (provider: Named Pipes Provider, error: 40 - Could not open a connection to SQL Server)