Sql-server – SQL Server 2008R2 SP1 instance not available for adding features

You selected the default instance name as the name of your instance.

Instance Configuration

"If you specify MSSQLServer for the instance name, a default instance will be created. For SQL Server Express, if you specify SQLExpress for the instance name, a default instance will be created."

To connect to the default instance you don't specify the instance name, only the server name.

Summarizing what we discovered in the chat.

When connecting over the network if the Windows Server is registered in Active Directory (AD) with a Service Principal Name (SPN), clients that try to connect with Integrated Authentication will get the Kerberos token from AD for the AD object that matches the server name to attach to the authentication. Kerberos won't be used when either the server that is being connected doesn't have an SPN or is being connected using SQL Authentication.

In this case, because "OLD-SQL" is still registered in AD and has an SPN registered spoofing, the DNS in the local host file won't work when using Integrated/Windows Authentication, as there is nothing adjusting which token is returned/used from AD. There doesn't appear to be a way to have the client know to use Kerberos token for "NEW-SQL" with the original "OLD-SQL" server still being in service, except to remove the "OLD-SQL" SPN from AD to force the authentication to fall back to NTLM. Spoofing the DNS works for aliases in which are not actual computer names registered in AD or do not have an SPN registered, as AD doesn't return a token for them, so the authentication falls back to using NTLM.

References

Understanding Kerberos Keys

Registering an SPN