From control panel --> services, You should see SQL Server Agent Service is still in starting status. Try to kill and restart it.

What type service account do you use to...

Which critical windows update did you applied? Any error messages in system/application logs on cluster resources?

"SQL Server 7.00.961 will not start.  When you view the services it states it is running."

Have you tried to run any jobs? Do you get jobs failure?

Check system/application logs

http://www.quest.com/spotlight_sql/

Have you tried to reboot the server and restart the installation?

Any error messages before installation failure?

"I'm not sure that the windows account that I want to use must be granted SQL access."

Yes. You need to grant it to access SQL Server.

Have you ever changed regional locale in your machine which you run the EM?

Interesting. Do you see the login in the result of sp_helplogins?

"If so it looks like the only way I can limit these huge log files is to delete them periodically."

If you don't want log to be growed too large, make the...

That user have to be able to access SQL Server too.

osql.exe -Syoursqlservername -E

spid 51/52/54 have been granted share lock to database 7.

See more infoamtion at BOL "Displaying Locking Information" and "Understanding Locking in SQL Server".

Check SQL Server installation log sqlstp.log at c:\winnt directory.