While doing the VMware vCenter 4.1 setup on Windows 2008 R2 recently, I have encountered a problem “Error 28038. Setup cannot create vCenter Server Directory Services instance” after re-setup vCenter server.

The solution is simple as below:

Remove Active Directory Lightweight Directory Services (AD LDS) server role on Windows Server 2008.

  • Click Administrative Tools
  • Click Server Manager
  • Click Roles
  • Click Remove Roles
  • Click Next
  • Un-check Active Directory Lightweight Directory Services
  • Click Next
  • Click Remove
  • Click Close

For more information, please refer to VMware KB 1015887 and 1013822.