Putting this here for future reference.
There are a number of things required to make a successful DAC connection on SQL Server express 2008:
1) add the trace flag(-T7806) to the startup parameters and restart the service.
2) Use “new database engine query” instead of “new query” or “connect”
3) Make sure the browser service is running
4) Stick “admin:” in front of the servername\instance when you connect.
References:
http://stackoverflow.com/questions/7670636/how-to-decrypt-stored-procedure-in-sql-server-2008
http://chopeen.blogspot.com/2006/08/dedicated-administrator-connections-are.html