the specified user account is a local account local accounts should only be used in stand alone mode

The following post contains the answer to this problem.

http://sharepoint.microsoft.com/blogs/fromthefield/lists/posts/post.aspx?id=112

Let me add a few more insturctions here. If you are attempting the above solution for the first time, there is a great possibility that you will get another error when running the powershell command. The error will be displayed in red color:

New-SPConfigurationDatabase : The user does not exist or is not unique.
At line: 1 char: 28
* New-SPConfigurationDatabase <<<<
This is because you did not give required permissions to the user (you used in the powershell command) in SQL Server.  The default admin user (local account) that you are using in the powershell command must be added in SQL Server. See Security > Logins. It must be listed there. If it's not, add them.

1. In Security > Logins, right-click the user name and select "Properties".
2. From left side, select "Server Roles" page and make sure "dbcreator" and "sysadmin" are checked.
3. Again from the left side, select "User Mapping" page and make sure database "master" is checked. If it's not, check it. Now make sure "master" database is mapped to the following roles:

- db_owner

Now run powershell command again and you should not see error now.

Hope this helps.

-SSA