from SrvMain.pas

        if (UpperCase(FDBServer) = 'LOCAL') or
           (UpperCase(FDBServer) = 'LOCALHOST') or (Trim(FDBServer) = '') then
          FServerDatabase.DatabaseName := FDBDatabase
        else
          FServerDatabase.DatabaseName := FDBServer + ':' + FDBDatabase;

from SrvServiceUnit.pas

            if (UpperCase(FDBServer) = 'LOCAL') or
               (UpperCase(FDBServer) = 'LOCALHOST') or (Trim(FDBServer) = '') then
              FServerDatabase.DatabaseName := 'localhost:'+FDBDatabase
            else
              FServerDatabase.DatabaseName := FDBServer + ':' + FDBDatabase;


          FServerDatabase.DatabaseName := FDBDatabase                           (SrvMain - OK)
          FServerDatabase.DatabaseName := 'localhost:'+FDBDatabase        (SrvServiceUnit - Failed)

FB Embed would not accept 'localhost:path' or ':path' syntax which means TCP protocol.

My workaround is  :  (in SrvServiceUnit.pas, both FIB & IBX)

        if FDBUseEmbeded then
            FServerDatabase.DatabaseName :=FDBDatabase
        else            
        begin
            if (UpperCase(FDBServer) = 'LOCAL') or
               (UpperCase(FDBServer) = 'LOCALHOST') or (Trim(FDBServer) = '') then
              FServerDatabase.DatabaseName := 'localhost:'+FDBDatabase
            else
              FServerDatabase.DatabaseName := FDBServer + ':' + FDBDatabase;
        end;