Line 448 on /user/index.php (http://cvs.moodle.org/moodle/user/index.php?annotate=220.127.116.11#l448) is missing spaces between the LIKE and the strings (i.e. LIKE'%foo%'). On MSSQL, XMLDB transforms '%foo%' to N'%foo%'. The result is LIKEN'%foo%' which causes an error.
One solution would be to ad spaces in that line. A more general solution would be to update XMLDB so that "'%foo%'" is transformed to " N'%foo%'" (note the space).