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Can I connect to ArcSDE for SQL Server using a trusted login?
If Windows 2000 or NT user group access is granted to SQL Server, you may have difficulty logging into ArcSDE for SQL Server as a user of that group.
It is recommended that you add an individual "operating system authenticated" user to the database, grant this user access to the databases, and ensure that their domain name is not part of their database user name.
To connect as a trusted login at ArcGIS/ArcSDE 8.1 you must input the domain\user name and password.