I have a machine that’s not on a domain, and I want to have a complete install of SharePoint 2010, not a standalone version. Because of this, I need to use local machine accounts
I followed the post ‘Single Server Complete Install of SharePoint 2010 using local accounts’ by Neil Hodgkinson to perform the setup of the configuration database using local machine accounts, and it worked great, but now I need a managed account.
With the account set up, I try and add the account through the UI and I get this error:
The specified user [accountname] is a local account. Local accounts should only be used in stand alone mode.
Once again, Power Shell to the rescue. Here’s the script:
First – get the credential and place it in a variable using the Get-Credential cmdlet.
$account = Get-Credential “machinename\accountname”
You’ll be presented with a challenge where you need to enter the password for the account
Then, use the New-SPManagedAccount cmdlet, passing the $account variable in for the –Credential parameter:
New-SPManagedAccount -Credential $account
You’ll still will get a warning, but the account will be added to the list of managed accounts.

<update date="May 7, 2010">
I don't recommend using local machine accounts. Turn your machine into a domain controller if you can. While local accounts may have made sense for MOSS in some cases, it's not worth the headache in 2010
</update>