<p>The SQL Server Express 2008 setup allow you to assign different user account for each service. </p>

<p>For a development environment, would you use a domain user, local user, NT Authority\NETWORK SERCVICE, NT Authority\Local System or some other account and why? </p>

It depends.
Local System - Never, it's too high
a privilege.
Network Service -
Perhaps, if you need to connect to
network resources, but that's
doubtful.
Local Service - Probably
the best choice, limited privileges,
do not unlock network connections
Local interactive user? Does it
truly need to have login rights, or
act as a user?
Domain user? Goodness
no, not unless you're accessing
network drives from within it; if
SQL runs amok then an attacker is
authenticated against the domain.