DLO 7.5 SQL instance on remote server

Do ensure remote connections to your SQL instance (TCP/IP and Named Pipes) are enabled first.

And the Computer Browser service must be started as well on both the DLO and the SQL server.

During the SDLO 7.5 installation, you will have the following option "Remote DB Install" and then you can point it to your production SQL instance.

Have a look @ pg 24 as well of the SDLO 7.5 Admin Guide.

From DLO ADMIN GUIDE PAGE 26

Select one of the following options for the DLO database.

SQL Server 2008 R2 Express SP1
 

On a 32-bit machine, the new local SQL Server 2008 R2 instance will be located at C:\Program Files (x32)\Microsoft SQL Server\ MSSQL10_50.DLO for DLO Database, and C:\Program Files (x32)\Microsoft SQL Server\MSSQL10_50.DEDUPE for Dedupe database.On a 64-bit machine, the new local SQL Server 2008 R2 instance will be located at C:\Program Files (X86)\Microsoft SQL Server\ MSSQL10_50.DLO for DLO database and C:\ProgramFiles (X86)\Microsoft SQL Server\MSSQL10_50.DEDUPE for Dedupe database.
Note: Each SQL instance requires minimum 2 GB hard disk space.

Existing SQL Server instance
The DLO Database and Dedupe database will be stored on an existing SQL Server 2005, SQL Server 2008, or SQL Server 2008 R2 Express instance on this computer. Select an instance from the list provided.

Note: If you use an existing database instance, named pipes must be enabled. If DLO installs its own SQL instance, then named pipes will be enabled automatically.

If you select this option, make sure that the SQL service is running under domain admin credentials, and provide the same user account credential that was used to install the SQL server, else the database connection fails.

"Existing SQL Server Instance" option is chosen if using an existing SQL instance on the same server, whereas "Remote DB Install" is chosen if using an existing SQL instance on a different server.

Yes you can.