asp.net 2.0 weird error

[Howard]

I've been trying to fix this for a week now.
I tried to migrate my asp.net 1.1 web apps to 2.0. No code changes, complied
fine. the 2.0 version even worked on my dev machine (windows xp)
But when I run it on my production server (windows 2003) I get this error.

Server Error in '/' Application.
--------------------------------------------------------------------------------

Instance failure.
Description: An unhandled exception occurred during the execution of the
current web request. Please review the stack trace for more information
about the error and where it originated in the code.

Exception Details: System.InvalidOperationException: Instance failure.
[InvalidOperationException: Instance failure.]
System.Data.SqlClient.TdsParser.Connect(Boolean& useFailoverPartner,
Boolean& failoverDemandDone, String host, String failoverPartner, String
protocol, SqlInternalConnectionTds connHandler, Int64 timerExpire, Boolean
encrypt, Boolean trustServerCert, Boolean integratedSecurity, SqlConnection
owningObject, Boolean aliasLookup) +684031
System.Data.SqlClient.SqlInternalConnectionTds.Ope nLoginEnlist(SqlConnection
owningObject, SqlConnectionString connectionOptions, String newPassword,
Boolean redirectedUserInstance) +628
System.Data.SqlClient.SqlInternalConnectionTds..ct or(DbConnectionPoolIdentity
identity, SqlConnectionString connectionOptions, Object providerInfo, String
newPassword, SqlConnection owningObject, Boolean redirectedUserInstance)
+170
System.Data.SqlClient.SqlConnectionFactory.CreateC onnection(DbConnectionOptions
options, Object poolGroupProviderInfo, DbConnectionPool pool, DbConnection
owningConnection) +359
System.Data.ProviderBase.DbConnectionFactory.Creat ePooledConnection(DbConnection
owningConnection, DbConnectionPool pool, DbConnectionOptions options) +28
System.Data.ProviderBase.DbConnectionPool.CreateOb ject(DbConnection
owningObject) +424
System.Data.ProviderBase.DbConnectionPool.UserCrea teRequest(DbConnection
owningObject) +66
System.Data.ProviderBase.DbConnectionPool.GetConne ction(DbConnection
owningObject) +496
System.Data.ProviderBase.DbConnectionFactory.GetCo nnection(DbConnection
owningConnection) +82
System.Data.ProviderBase.DbConnectionClosed.OpenCo nnection(DbConnection
outerConnection, DbConnectionFactory connectionFactory) +105
System.Data.SqlClient.SqlConnection.Open() +111

I tried to search on google, found this but no answer
http://answers.google.com/answers/threadview?id=599326

I know my connectstring is correct. I tried both sql server 2000 and 2005.
same exact error. the sql server serivce runs on the nt authority/network
service account.

this makes no sense at all
please help,
Howard