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Ok sure this is a bit "nit picky", but the collation error explanation where database collation is unsupported, table collation is supported is misleading.
To begin, the database collation IS supported (Latin1_General_CI_AI - according to the docs) as were the tables (same collation). However, the SERVER (Instance) collation was set to Latin1_General_CI_AS.
This is what threw the error (I think). I solved this by shutting down the SQL Server Instance, from the server host, and running this command (on Windows Server 2012, SQLServer 2012):
sqlservr.exe -m -T4022 -T3569 -s"MSSQLSERVER" -q"Latin1_General_CI_AI"
- which is unsupported, but it worked for me on a test system with some dummy projects added.
This however, also changes the collation of all other databases running under the same instance (schemas, for the technically accurate), as well as some index rebuilding/restoration.
It would be helpful to indicate this as a possible fix for the the collation trouble shooting steps for (at least) version 8.1.0, as well as either indicate what the server collation needs to be and/or determining if this is actually an issue.