I sincerely hope this saves somebody else some time because I had a fair amount of head scratching with this today. Installed a Windows Server 2012 VM on vSphere 5.0 U2, pretty standard install with a C:\ drive for OS, Software etc and D:\ for data. This particular server needed to run SQL Server 2012, however the install kept repeatedly failing with the error “Could not find the Database Engine startup handle”. Initially I suspected that it might be a problem with a corrupt ISO as there are numerous postings around that and some, such as the below, suggesting that it could be an issue with mounting an ISO (I was pretty dubious about this though).

http://mbmccormick.com/2012/12/sql-server-2012-could-not-find-the-database-engine-startup-handle/

Having messed around with extracting the ISO, copying the files locally and other methods, eventually I tracked down in the SQL Server install log that it seemed to be having an issue reading and writing files to and from the D:\ drive during setup. During the SQL Server install wizard I’d specified that the path for databases, logs etc would be D:\. So I re-ran the installation and this time left the default of C:\ for everything and voilà, it worked!

No big deal I thought, I’ll simply change these locations post install. However, when I went to change the database server properties (or attempt to create a database) I was greeted with a dialogue box which only displayed the C:\ drive as accessible, no sign of D:\.

--> Please see the rest on the blog : http://www.jonathanmedd.net/2013/06/windows-server-2012-on-vsphere-5-0-the-case-of-the-missing-d-drive.html