So you do not even have any database created yet?? What version of SQL do you have installed?
I dont think you should worry about the Connection String in the web.config until you actually get your databases created.
There should be 2 sql scripts that you need to run:
Classifieds-add and Classifieds-categories
If you run the Classifieds-remove you are deleting your database, stored procs, views...etcc..
So bascially create a new database is SQL Server, and then run those two scripts and then check to see if the tables, stored procs, views etc are there.
After that you then need to create the aspnetdb by running the aspnet_regsql utility. You can create those tables and stored procs in the same database if you want to, but in any case no matter how you do it you have to run that aspnet_regsql utility.
Then once you get your databases created, then you can worry about the connection string which is quite easy to modify to point to your database(s).