Is this a web application?

Does the SQL Server you are trying to reach on the server or is it on another server?

If it is on another server I bet you are getting into a kerberos problem.

If you want to check your Keberos for a web server I found this utility great for troubleshooting my problems.

http://www.iis.net/community/default.aspx?tabid=34&g=6&i=1887