If you are running dbsetup i'm assuming you are either creating a new database or upgrading an existing one.
If that is the case you will need to use either a 'sysadmin' account for SQL Server or for oracle either a 'sys' account for a new database or the 'admuser' account for upgrading.
Below are the steps for creating a new oracle database, can you confirm that you are getting the exact same or if anything is different and at which point it fails
1) Run dbsetup.bat - should come up with a screen asking to Install a new DB or Upgrade and if it is going to be Oracle or SQL Server.
You should be choosing Install a New Database and Oracle
2) Next page is connection information which you should be entering the following.
Username/pass = system/<your password>
Host Address - servername where Oracle is installed (if you are running dbsetup.bat on the database server you can use localhost)
Database Port - 1521 (or different if you are running a non-default port)
Database SID - <sid created when you installed Oracle>. If you installed OracleXE this would be 'XE' if you Installed Oracle Database (Standard or Enterprise) and didn't change anything at all then this should be 'orcl'
3) You should then be prompted to create the tablespaces or use existing ones - if you haven't created any databases yet you will need to create new ones so just click Next.
4) The next page is asking you to CREATE the oracle user accounts, unless you already have existing users in there this should never give you a bad username/password. Enter the username/passwords and click Next (next will be greyed out until all passwords and confirm passwords are filled in and math).
5) After this it is pretty much done, just a couple more next or finish clicks (sorry I didn't want to take my dbsetup any further as I don't want to create unnecessary user accounts in my environment)
If you are getting something different to this then I think probably a screenshot is going to be required.
I'm not sure if Oracle Forums support images so you may need to upload it to a 3rd party site and post a link)