I'm going to take a chance here. I would suggest that your SQL instance is installed only for Windows \ Integrated logins. The user password \ password that you set in the connection string is intended only for logging in to the SQL system; you cannot transfer it to other Windows users in this way. It would seem that you are trying to impersonate using the connection string. I wish everything was so simple.
Thus, you probably need to enable mixed-mode protection in your sql instance and create accounts for that user, or you must impersonate the Windows user in your application and then use integrated protection.
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