Hi,
Looks like you are running in Medium Trust. Are you using the special download configured for medium trust? If so you should put your connection string in the user.config file instead of the Web.config. If user.config file is present, appSettings placed there will override settings in Web.config.
However, note that when you make a change to user.config ASP.NET does not automatically pick it up because its not monitoring that file for changes. So you have to modify the Web.config by typing a space in it or something after you make changes to user.config, then it will pick up your changes to user.config.
So my best guess is user.config is present and has an incorrect connection string which is overriding the correct one you set in Web.config. Update user.config with your connection string and it should work.
Hope it helps,
Joe