SQL Server architecture

What is a transaction and what are ACID properties?

A transaction is a logical unit of work in which, all the steps must be performed or none. ACID stands for Atomicity, Consistency, Isolation, Durability. These are the properties of a transaction. For more information and explanation of these properties, see SQL Server books online or any RDBMS fundamentals text book.
Explain different isolation levels

An isolation level determines the degree of isolation of data between concurrent transactions. The default SQL Server isolation level is Read Committed. Here are the other isolation levels (in the ascending order of isolation): Read Uncommitted, Read Committed, Repeatable Read, Serializable. See SQL Server books online for an explanation of the isolation levels. Be sure to read about SET TRANSACTION ISOLATION LEVEL, which lets you customize the isolation level at the connection level.
CREATE INDEX myIndex ON myTable(myColumn)

What type of Index will get created after executing the above statement?

Non-clustered index. Important thing to note: By default a clustered index gets created on the primary key, unless specified otherwise.
What's the maximum size of a row?

8060 bytes. Don't be surprised with questions like 'what is the maximum number of columns per table'. Check out SQL Server books online for the page titled: "Maximum Capacity Specifications".
Explain Active/Active and Active/Passive cluster configurations

Hopefully you have experience setting up cluster servers. But if you don't, at least be familiar with the way clustering works and the two clusterning configurations Active/Active and Active/Passive. SQL Server books online has enough information on this topic and there is a good white paper available on Microsoft site.
Explain the architecture of SQL Server

This is a very important question and you better be able to answer it if consider yourself a DBA. SQL Server books online is the best place to read about SQL Server architecture. Read up the chapter dedicated to SQL Server Architecture.
What is lock escalation?

Lock escalation is the process of converting a lot of low level locks (like row locks, page locks) into higher level locks (like table locks). Every lock is a memory structure too many locks would mean, more memory being occupied by locks. To prevent this from happening, SQL Server escalates the many fine-grain locks to fewer coarse-grain locks. Lock escalation threshold was definable in SQL Server 6.5, but from SQL Server 7.0 onwards it's dynamically managed by SQL Server.
What's the difference between DELETE TABLE and TRUNCATE TABLE commands?

DELETE TABLE is a logged operation, so the deletion of each row gets logged in the transaction log, which makes it slow. TRUNCATE TABLE also deletes all the rows in a table, but it won't log the deletion of each row, instead it logs the deallocation of the data pages of the table, which makes it faster. Of course, TRUNCATE TABLE can be rolled back.
Explain the storage models of OLAP

Check out MOLAP, ROLAP and HOLAP in SQL Server books online for more infomation.
What are the new features introduced in SQL Server 2000 (or the latest release of SQL Server at the time of your interview)? What changed between the previous version of SQL Server and the current version?

This question is generally asked to see how current is your knowledge. Generally there is a section in the beginning of the books online titled "What's New", which has all such information. Of course, reading just that is not enough, you should have tried those things to better answer the questions. Also check out the section titled "Backward Compatibility" in books online which talks about the changes that have taken place in the new version.
What are constraints? Explain different types of constraints.

Constraints enable the RDBMS enforce the integrity of the database automatically, without needing you to create triggers, rule or defaults.

Types of constraints: NOT NULL, CHECK, UNIQUE, PRIMARY KEY, FOREIGN KEY

For an explanation of these constraints see books online for the pages titled: "Constraints" and "CREATE TABLE", "ALTER TABLE"
Whar is an index? What are the types of indexes? How many clustered indexes can be created on a table? I create a separate index on each column of a table. what are the advantages and disadvantages of this approach?

Indexes in SQL Server are similar to the indexes in books. They help SQL Server retrieve the data quicker.

Indexes are of two types. Clustered indexes and non-clustered indexes. When you craete a clustered index on a table, all the rows in the table are stored in the order of the clustered index key. So, there can be only one clustered index per table. Non-clustered indexes have their own storage separate from the table data storage. Non-clustered indexes are stored as B-tree structures (so do clustered indexes), with the leaf level nodes having the index key and it's row locater. The row located could be the RID or the Clustered index key, depending up on the absence or presence of clustered index on the table.

If you create an index on each column of a table, it improves the query performance, as the query optimizer can choose from all the existing indexes to come up with an efficient execution plan. At the same t ime, data modification operations (such as INSERT, UPDATE, DELETE) will become slow, as every time data changes in the table, all the indexes need to be updated. Another disadvantage is that, indexes need disk space, the more indexes you have, more disk space is used.