Hello,
we have nearly the same problem! The upgrade failed and hung up with the task "Creating Database and applying schema". We were not able to select our existing database. Only the "greyed-out" master database.
After completly uninstall of HP SIM 5.1 (last SP and fixes) we tried to install HP SIM 5.2 again.
No possibility to edit the database name (USE SQL/SQL Express), so we used the "greyed-out" master database again. After the installation completed successfully, HP SIM created a new and "empty" database without any existing/migrated data (servers, user/groups).
HPSIM Server: Windows 2003 Standard Server, SP2
Database Server: Windows 2003 Std Server, SQL 2000 SP4
Regards