see Microsoft KB article for information on using SQL Server in FIPS 140-2 compliant mode:
http://support.microsoft.com/kb/920995/
To configure encryption using SQL Server features:
From the SQL Server Configuration Manager GUI:
1. Expand SQL Server 2005 Network Configuration
2. Right-click on Protocols for [instance name]
3. Select Properties
4. Select the Flags tab
5. Select Yes for ForceEncryption from the pull-down options