This is typical of not having a path to the SQL bin directory as one of the environment variables on the SQL server. It occurs mostly on Exchange, but, I have also see this with SQL
Here is what the Exchange integration Guide says about the 'path'
The
<Exchange_home>\bin directory must be added to the Windows
Path
environment variable before any operation is performed.
To add this directory, proceed as follows:
1. In the Microsoft Windows Explorer, right-click My Computer and click Properties.
2. In the Properties dialog box, click Advanced and then Environment Variables.
3. In the Environment Variables dialog box, select Path in the System Variables list and click Edit.
4. Add
<Exchange_home>\bin
in the Variable Value text box and click OK.
One easy way to check this is, on the SQL server, type teh command
path
to see if there is a path to the 'bin' directory