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When upgrading an ArcSDE geodatabase within SQL Server to version 10.0, the following error message may be encountered.
Bad login user [Microsoft SQL Server Native Client 10.0: Cannot execute as
the database principal because the principal "sde" does not exist, this
type of principal cannot be impersonated, or you do not have permission.]
Bad login user
When upgrading the geodatabase to version 10.0, a direct connection to the geodatabase as an administrative user is required.
If using an SDE schema and the SDE login does not exist and/or is not synchronized with the SDE database user, the above error is received and the upgrade cannot be completed.
See the article 'Re-synch SQL Server logins or users after restoring a database from backup' in the Related Information section for specific steps on synchronizing the login/user within SQL Server.