Steven Erat of Macromedia explains that an error may occur when a user is trying to establish a SQL Server datasource from ColdFusion MX 6.1 using the default JDBC driver for Microsoft SQL Server. If the security on the database itself is configured to permit "Windows Only" authentication, ColdFusion MX cannot yet provide that "Trusted Connection" through its default JDBC drivers, so it will throw an error. This highly informative blog entry will give you all the details.
Not Associated with a Trusted SQL Server Connection (TalkingTree.com, Steven Erat's Blog, June 17, 2004)