Just to be on the safe side, can you test the connection parameters to make sure they're correct? I found this open source project on the internet:
DbAccess Tester[
^].
Second, make sure "Mixed mode" authentication is enabled in Sql Server. And also that the user has login permission. This article covers both:
http://kb.kcsi.ca/Knowledgebase/How-to-Change-from-Sql-Server-Windows-mode-to-Mixed-Mode-SQL-SERVER-2008[
^]
*Note: You do not need to change the password. Also, the user doesn't have to be sa.
Finally restart management studio by right clicking the server name and clicking "Restart". Wait a few moments for the service to restart before proceeding.
Let me know if this doesn't help. We can then diagnose further.