We experienced an issue regarding connecting splunk with mssql databases. When we try to add a mssql database, the external database adding page gets irresponsive and gives a message at the top of this page like "splunk server may be down".
Do we have to have a mixed account to be able to connect to an external MSSQL database?
Make sure you select your appropriate version. I gave link to 1.2.2, you can change the version in upper-ish right-ish corner of the page. You might also like to review the "enhanced" troubleshooting section of version 2 because they got into more driver troubleshooting, etc. in the latest documents (not all will apply but might help).
It for sure sounds like a timeout issue. So I would start by putting dbx into debug mode (covered in the link). Then I would check index=_internal log_level=ERR* OR log_level=WARN*. Post any errors and warnings related to db connect as comments.
Finally, you can telnet to test port 1433 is open, check error logs on the sql server, and many more things. It might take a while but we'd be happy to help you if you've got the time to update this post.
Note that in windows 2010+ and I've even seen in it 2008 i believe... the TCP/IP SQL configuration has new options. You have to enable TCP/IP on the instance, and also on the IPv4 address under advanced properties.