Geert,
I GOT IT WORKING!!! The short answer: In Enterprise Manager, Right click on the server, click Security tab, select under Authentication "SQL Server and Windows". I had tried a few times earlier today to select that radio button, and every time I clicked OK, it would close out of the screen, and the next time I went back in there, the setting would have reverted to Windows Authentication. This time around, when I changed it, it said "This will be saved, but you have to restart the server" - which it never said before when I'd tried all those times. Weird huh?
I deleted all my databases, deleted all the extraneous user accounts I'd created, then shut down SQL Server, restarted it, created a DotNetNuke database, created a user account with dbowner permissions, did the above-mentioned change to both authentication types, updated web.config, and voila, it runs.
Thanks for the hint about EMS - it gave me the ability to test my connection and get meaningful error messages. <sigh> I started working on this problem at 4:30pm and it's now 1am. I am very tired but satisfied to have beaten it - I couldn't go to bed defeated!
Geert thanks once again for your help - your answers lead me down the trail which caused me to stumble on another forum article (when I searched in Google for the "Not associated with a trusted SQL" error message) which caused me to try the above mentioned authentication setting. To be honest, I still don't understand the whole authentication thing, but at least it's working now.
thanks again
Ashley