Hemant,
Command still couldn't find the file, either - BUT I did in fact manage to clear this up with minimal fallout. Still not sure what the root cause was (LiveUpdate, Windows Update or the fact that the instance for BE was being used on MSSQL2005 Standard, rather than EE), and using the BE utility to repair the database did not work, as it could not 'see' the DLO db, even though you could log in and see it fine through SQL Server Management Studio.
First, I uninstalled the DLO instances and reporting via the SQL Server 2005 change/remove dialog in add/remove programs. Next, did a change/remove on BE and removed the DLO option, which removed the database data from the instance (I first stopped the services and made a backup just in case). Next, did a change/remove on BE and did a total uninstall, but chose to keep all settings, job and history data intact.
Reinstalled BE with same options and DLO option from the start, using SQL Express instance for the db's instead. BE came back up with all data intact, though I had to recreate the DLO settings and schema (which for us involves a LOT less work than redoing the regular BE schema for the tape backups). both BE and DLO operate properly, and I was able to set up profile, storage, AD integration and auto assignments just fine. Also, applied all LiveUpdate fixes right after the main BE reinstall before setting up DLO.
Anyone with the same issues as I have will probably have to go through this same process, but at least you can do it safely w/o losing your main BE settings and jobs.