I used the Create Database User tool, then added user DBO to the new postgreSQL db.
I then connected to the postgreSQL gdb as user DBO and was able to import the .XML workspace file.
Now, when I try to register the postgreSQL gdb.sde connection file with ArcGIS Server, I get this error:
"Machine: <ArcGIS Server machine> [<reg. db name>: The connection property set was missing a required prooperty or the property value was unrecognized. Bad login user]"
Doesn't matter if I edit the .sde connection file to connect as postgres, sde or DBO user, they all give the same error above when attempting to register with ArcGIS Server.
edit: got this figured out!
Looked at the PostgreSQL log and saw entries: "<ArcGIS IP Address> not granted access in pg_hba.conf"
Then remembered, I restricted PostgreSQL client access to a single workstation (mine) for testing... Added in the entire LAN and now everything is working!!
thanks again.