RESOLUTION
1. Stop the service (Quest Diagnostic server service.) on the Quest Diagnostic machine.
2. Uninstall (from add/remove programs) Quest Diagnostic Server or Spotlight DIagnostics Server (depending on the version you have installed) from that machine and any Spotlight on SQL Server (client) . Regardless of the number of clients you have connected to that Quest Diagnostic, all client installs needs to be uninstalled (Spotlight on SQL Server).
3. Delete both databases; playback and Spotlight Statistics Repository.
4. Now you are ready to install (both client part and Diagnostic Server). It will ask you where do you want your Playback Database to be so you can select this same instance. Spotlight Statistic Repository is optional therefore after the install go to Configure tab -> Diagnostic server -> Configure the SpotlightStatistics Repository.