It sounds like it is connecting but not able to alter the schema.
Are you putting the connection string in Web.config or user.config?
Obviously the sa user should be able to alter the schema but if the connection string setting is in more than one place in user.config, the one towards the bottom of the file wins, so in that situation if you were editing a copy of the setting closer to the top it would have no effect if there was one lower in the file with a less privledged user.
Other than that I would make sure you have all the service paks for sql 2005 installed.
Hope that helps,