Symptoms

Get the system cannot find the file specified error when generating the saleforce instance in K2 farm.
 

Diagnoses

Installed SDK 8.1 and tried to manipulate registry key to point to that directory but still received error.

Copied SDK 7.0A to server and was able to create Salesforce instance.

Had to update BrokerManager.exe.config to point to SQL instance because server is clustered.

Resolution 

Was able create Salesforce instance after the BrokerManager.exe.config was corrected to point to the correct SQL Service instance.