It tries to create a table and then alter the table then delete the table, if it fails it gives this error. If the user is not dbo then it will not work.

However, it is trying to use the [dbo]. prefix, in some installations depending on sql server settings the user might have permissions but not really be dbo and therefore the prefix will not work. 

There is a setting in Web.config to override it, but your mileage may vary in getting it to work. It would be much easier if your user really is dbo.

<!-- do not change this unless you understand the workings of the code
     and have a reason to change it. -->
    <add key="MSSQLOwnerPrefix" value="[dbo]."/>

You may need to make it blank or make it use the username like [username].

But I make no promise whether it will work for you. I recommend use a dbo user for installation and upgrades, though you could potentially use a less powerful user after installation. ie, you could install using sa, but then create a user with only exec permissions on all procedures and use that user after installation.

Hope it helps,

Joe