(I've posted this question on the codeplex forums too, but have yet to get a response)

I've got an on-premise installation of CRM and I'm trying to hook the portal to it. My connection string in web.config:

<connectionStrings>
    <add name="Xrm" connectionString="Authentication Type=AD; Server=http://myserver:myport/MyOrgName; User ID=mydomain\crmwebuser; Password=thepassword" />
</connectionStrings>

And my membership provider:

<membership defaultProvider="CustomCRMProvider">
    <providers>
          <add connectionStringName="Xrm" applicationName="/" enablePasswordRetrieval="false"
             enablePasswordReset="true" requiresQuestionAndAnswer="false"
             requiresUniqueEmail="true" passwordFormat="Hashed" minRequiredPasswordLength="1"
             minRequiredNonalphanumericCharacters="0" name="CustomCRMProvider"
             type="System.Web.Security.SqlMembershipProvider" />
    </providers>
</membership>

Now, I'm super new to MS style web development, so please help me if I'm missing something. In Visual Studio 2010, when I go to Project > ASP.NET Configuration it launches the Web Site Administration Tool. When I click the Security Tab there, I get the following error:

There is a problem with your selected data store. This can be caused by an invalid server name or credentials, or by insufficient permission. It can also be caused by the role manager feature not being enabled. Click the button below to be redirected to a page where you can choose a new data store.

The following message may help in diagnosing the problem: An error occurred while attempting to initialize a System.Data.SqlClient.SqlConnection object. The value that was provided for the connection string may be wrong, or it may contain an invalid syntax. Parameter name: connectionString

I can't see what I'm doing wrong here. Does the user mydomain\crmwebuser need certain permissions in the SQL database, or somewhere else?

edit:

On the home page of the Web Site Administration Tool, I have the following:

**Application**:/

**Current User Name**:MACHINENAME\USERACCOUNT 

Which is obviously a different set of credentials than mydomain\crmwebuser. Is this part of the problem?