Just a day ago, I was doing small attempting to connect to my local SQL Server using IP 127.0.0.1. The IP is of my local machine and SQL Server is installed on the local box as well. However, whenever I try to connect to the server it gave me following strange error.

Cannot connect to 127.0.0.1.
Login failed. The login is from an untrusted domain and cannot be used with Windows authentication. (Microsoft SQL Server, Error: 18452)

The reason was indeed strange as I was trying to connect from local box to local box and it said my login was from an untrusted domain. As my system is not part of any domain, this was really confusing to me. Another thing was that I have been always able to connect always using 127.0.0.1 to SQL Server and this was a bit strange to me. I started to think what did I change since it  last time I connected to SQL Server. Suddenly I remembered that I had modified my computer’s host file for some other purpose.

Solution:

I opened my host file and immediately added entry like 127.0.0.1 localhost. Once I added it I was able to reconnect to SQL Server as usual. The location of the host file is C:\Windows\System32\drivers\etc. You will find file with the name hosts in it, make sure to open it with notepad.

If you are part of a domain and your organization is using active directory, make sure that your account is added properly to active directory as well have proper security permissions to execute the task.

Reference : Pinal Dave (http://blog.SQLAuthority.com)