Ok, could you try the following, and let us know your results.
1. Open notepad (or any another app. like that).
2. Create a empty file and save it. Call it whatever you want, however the file ext should be .udl.
3. Double Click on the .udl file you created.
4. This will open up a form, on the form click on the radio button called "Use Connection String", then click on Build...
5. Then choose the Data source, or create a new one if you did not do this already.
6. Once you get the data Source, click ok. It will now ask you for a user name and password, supply that to the program.
7. Once you click OK...it will bring you back to the orginal form...Notice that you now have text for Connection String... Now Click the button label Test connection, if everything is ok, you now know that you can connect to SQL Server.
The string in the textBox label Connection String is what this program used to connect, so it has all the correct values.
The String looks something like this:
DSN=<SomeDNS>;UID=<User ID>;PWD=<Password>;APP=Microsoft(R) Windows (R) 2000 Operating System;WSID=<Windows User ID>;DATABASE=<The Name of the DB>;Network=<Not sure what this is>;Address=<The IP address, Followed by the Port>
Take the value and compare them to the value in your app, and make sure the match.
Please let us know what happens.