Several times in the past I've been involved in a struggle to connect from a term serv box to the SQL Server box with ODBC, you get the TEST CONNECTION FAILED message and not a lot of help. It takes hours or days to get a resolution and by the end of it I'm tired and I don't blog the result.
The article below is the resolution of one of these struggles. It is likely not the only issue but as GP ages and newer hardware and OSs come along we'll need more hacks to keep it going.