As the topic says I want to run a single hosted Application that uses SQL for its database. Sql express would be fine. The cost for a small windows box is about $85-90 a month depending on how much bandwidth you use but the cost for a SQL Server of the same size is $128 - 130ish
If I choose a Windows server am I free to put anything I like on it software wise??
If the OP is already needing an IaaS VM to host the application then adding SQLExpress probably makes the most sense from a $/month perspective. If scalability and availability were factors then SQL Azure plus Windows Azure Web Sites would make more sense.
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