You can't use a local account when Sql is on a different server.  See here for 
more on the topic:

http://www.microsoft.com/Businesssolutions/Community/NewsGroups/dgbrowser/en-us/default.mspx?dg=microsoft.public.axapta.programming&tid=a1ce9574-d58a-4e67-9e16-6c66df5ea081&cat=&lang=en&cr=US&sloc=&p=1


--- In development-axapta@yahoogroups.com, "Abhay" <ab...@...> wrote:
>
> When i try start AOS from services it can't start. I try it for Local system 
> account . In the Event viewer  i got the followng messages...
> Plz any one can tell the solution for this"SQL diagnostics: [Microsoft][ODBC 
> SQL Server Driver][SQL Server]Login failed for user 'NT AUTHORITY\ANONYMOUS 
> LOGON'.. Connect information was: Userid = [], Database = [OBSSMD_US], Server 
> = [OBS-DYNAMICS-DB], DSN = [], Other = []" "Fatal SQL condition during 
> login. Error message: "[Microsoft][ODBC SQL Server Driver][SQL Server]Login 
> failed for user 'NT AUTHORITY\ANONYMOUS LOGON'."Regards
> Abhay
> 
> [Non-text portions of this message have been removed]
>


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