Also, If I use windows explorer to move the the software folder on the hard drive and double click 'setup' it says the device is not connected.
Is this a fresh install of WHS? Did you have any problems during installation? Typically the "device is not connected" error is due to a secondary hard drive not being available. Can you logon to the server desktop and open the Console from there? If so, are there any Network Health warnings? What are the component numbers in the Console (Settings button, Resources tab)?