If you are trying to connect to SQL Server 2005 with a SQL Server User Login
and receive this error:
Remember to check that the servers authentication is set to "SQL Server and
Windows Authentication mode". You can check this in the Security page of the
Server Properties.
By default SQL Server 2005 likes to install in Windows Authentication only
mode, which will prevent any SQL Logins from connecting. SQL Server will still
allow you to create new SQL Logins and they will appear enabled in Management
Studio, which can be a bit confusing.
MS Knowledge Base Article
555332 should be linked to from
http://go.microsoft.com/fwlink?ProdName=Microsoft+SQL+Server&EvtSrc=MSSQLServer&EvtID=18452&LinkId=20476