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RareSeedsFlag for United States of America

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ODBC Connection Issue

I have an urgent issue I have been dealing with for over 48 hours now (should have opened this question long ago!).

I am unable to connect to an existing SQL Server 2008 database from a workstation using ODBC.  Here's what's strange: I can set up the connection (System DSN, Windows Authentication), and actually select the default database (tells me I have successfully connected to the server in order to get the database list in the first place).  At the end of the wizard I click the 'Test Data Source... button, and all tests complete successfully.  So it seems that server name, username, password, firewalls, and all permissions are set successfully.

However, when I attempt to use the newly-created connection, I am getting the dreaded Connection Failed/ConnectionOpen(Connect())/Server Does Not Exist Or Access Denied errors (2 & 17).

Looking at the SQL server logs, I can see where I connected successfully during the test, but there is no entry for the connection attempt during actual use.  What is the difference between the Test Data Source function and 'real' use?

Any ideas as to why I cannot even touch the server, let alone attempt a connection?
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I'm going to split the points among all three since the two experts also have correct answers to this type of problem.