From Microsoft:
Local System account. The name of this
account is NT AUTHORITY\System. It is
a powerful account that has
unrestricted access to all local
system resources. It is a member of
the Windows Administrators group on
the local computer, and is therefore a
member of the SQL Server sysadmin
fixed server role
Network Service account. The name of
this account is NT
AUTHORITY\NetworkService. It is
available in Microsoft Windows XP and
Microsoft Windows Server 2003. All
services that run under the Network
Service account are authenticated to
network resources as the local
computer.
So unless you need your Dev SQL Server to use Network Services, you can use Local System account.
Update:
To Configure your surface area go Start->Microsoft SQL Server->Configuration Tools->SQL Server Surface Area Configuration.
Thats how you setup for incoming connections. Also make sure the SQL Browser server is running.
I would also recommend either SQL 2005 for Dummies or SQL Server 2005 Bible to do some study on some of the basic stuff of SQL Serve. The bible will also go more indepth should you be beyond the dummies type book.