With the release of SCOM 1807, you can now use SQL Server 2017.

In order to do that, you should first upgrade to SCOM 1807 and then upgrade your SQL 2016 to 2017. This looks a bit frustrating but the upgrade process is painless and straight forward.

You can read my previous post on how to upgrade SCOM 1801 to 1807.

After upgrading SCOM, use the SQL Server 2017 media and upgrade your SQL 2016 environment.