If the SQL server resides on a separate server from IIS, then the IUSR_machinename account needs to be validated on the Windows NT server that SQL resides on. If the SQL server resides on the same server as IIS, then named pipes connections work and validation is successful. If the connection to IIS is anonymous, IIS uses the Windows NT account IUSR_machinename and so any network activity performed by IIS is done under this account ID. The IIS service runs under this Windows NT account name. The Internet Information Server (IIS) setup process creates a Windows NT ID called IUSR_machinename (where machine name is the name of the Windows NT server), and adds that user to the Guest local group. This is normally accomplished through a Workgroups-style validation method where identical usernames and passwords are created on the client and the server, or the domain method where both the client and server are domain members. Once we corrected this - everything ran smoothly. In my case It caused by incorrect MTU size on WAN channel (GRE tunnel). In order for a client to gain access to a Windows NT named pipe, the client needs to be validated by the Windows NT server. After searching google I realised that in spite of error messqage 'LDAP bind failed with error 1326, Logon failure: unknown user name or bad password' it does not relate to any creds. Error 1326 means "Logon failure: unknown user name or bad password." This error is raised because the IIS Service does not have any rights to use the named pipe.
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