What are you using to connect to the database? An ORM, a SqlConnection Object, other methods?
Here is an article on Security Guidelines in ADO.NET2.0[
^], which I guess should be fine if you're using SqlConnection Objects.
Here is a more up-to-date, but less detailed article[
^] on ADO.NET4.
When working with ORM's, such as the Entity Framework, I think you should check the website of that product on best practices for connecting to databases.
Here is an article on security considerations in Entity Framework 4.[
^]
Sorry that I could not be more detailed, but I think the above links should provide you with enough clues as to how to connect to a database (Windows logon, SQL logon, encrypted password). Which approach works best for you is dependent on your situation, technologies and needs.
Hope it helps! :)