There are known issues with the way Native Authentication is being passed between the IIS Servers and the SQL Servers. Usually there is no issue authenticating remotely when using the account that installed Spotlight On Exchange and also running the reports on the IIS server. It is recommend either to use Kerberos, SQL Authentication or installing both IIS & SQL on the same system. Due to security issues, it may not be desirable to install both IIS and SQL on the same server. It is suggested to use SQL Authentication because the environment has to be in Native Mode Win2K with other settings to be configured for Kerberos and Basic Authentication sends passwords in clear text across the network. Below is more information regarding the different authentication that can be used.
The following Microsoft KB Articles can assist with using Native Authentication:
Article ID 176379 - How to set up IIS and SQL Server on separate machines with a trusted connection
Article ID 176377 - Accessing SQL Server with Integrated Security from ASP
Article ID 176380 - How To Use ASP with a SQL Trusted Connection with Guest Account
The following Microsoft KB Article can assist with enabling Kerberos Authentication:
How To: Implement Kerberos Delegation for Windows 2000