Unit Test with ado.net application block

If the code you're testing talks to a database, by definition that is not a unit test (it's an integration test). Are you actually testing the database access code here? If not, you want to put the database access code behind an interface and use a mock database provider for the unit tests of application code, which logs the requests that are made to it and provides suitable data for the application code to execute. You then check that the appropriate requests were made to the database provider.

If you are directly testing database interface code, then yes, I recommend creating a throwaway database for each test. Testing the database interface code can be done with a small number of tests and small sample data so creating a database instance should be fast.