This may be not the answer but I found that once I specified an actual account and moved back to a JDBC connection the problem went away, so its something to do with windows service accounts/JTDS which I've yet to investigate further... My DataSource using sqljdbc4 is now as follows and works fine...
dataSource {
pooled = true
driverClassName = "com.microsoft.sqlserver.jdbc.SQLServerDriver"
}
hibernate {
cache.use_second_level_cache = true
cache.use_query_cache = false
cache.region.factory_class = 'net.sf.ehcache.hibernate.EhCacheRegionFactory'
}
// environment specific settings
environments {
development {
dataSource {
dbCreate = 'update' // one of 'create', 'create-drop','update'
url = "jdbc:sqlserver://localhost;database=TestDB"
// databaseName = "..."
username = "test"
password = "test"
dialect = org.hibernate.dialect.SQLServerDialect
//logSql = true
}
}