stuck on database installation

OK gang...maybe it's my "Drupal Dyslexia", but I'm having trouble understanding the mechanics of database creation, and can't seem to find specific answers in the documentation or forums.

I'm running apache and mysql (XAMPP) on windows for a localhost setup.
I've created a couple empty databases and figured out how to grant write access to them.
XMAPP runs fine, Drupal install comes up, but I can't get past the database configuration.

When I type in the database name and user (root) I get the following error message:

Warning: fopen(./sites/default/default.settings.php) [function.fopen]: failed to open stream: No such file or directory in C:\xampp\htdocs\dev\includes\install.inc on line 188

Warning: Cannot modify header information - headers already sent by (output started at C:\xampp\htdocs\dev\includes\install.inc:188) in C:\xampp\htdocs\dev\includes\install.inc on line 618

Warning: Cannot modify header information - headers already sent by (output started at C:\xampp\htdocs\dev\includes\install.inc:188) in C:\xampp\htdocs\dev\includes\install.inc on line 619

Questions:
Where should I place the database? In the "htdocs" file? Somewhere in "mysql"?
Can I give it an arbitrary name, or does it have to be something specific?
Should said database have a "php" file extension? If not, what file extension should it have?
Do I need to create tables, or will Drupal do that on installation?
If I need to create them, how many rows/columns do I need?
Do I need to populate those tables? If so, with what?

Thanks in advance everyone

-John