Full error message:
"Connection was not created due to an invalid user authentication - make sure 'Allow saving password' option is selected."
This error may be returned after successfully testing a new OLE DB connection. Once the error message dialog has been dismissed, no new OLE DB connection object is created in the TOC panel in ArcCatalog.
The Data Link Properties menu includes the option 'Allow saving password', which if enabled, allows the password to be saved (encrypted) as part of the connection string. This option must be selected for OLE DB connections to data sources which require a password.
Select the 'Allow saving password' option on the Data Link Properties dialog.