After much digging, I found this MathGroup archive detailing how to get Mathematica working with SQL servers protected by Windows authentication.
It's repeated here mainly for posterity's sake.
- Download the jTDS files from here: http://sourceforge.net/projects/jtds/files/
- Unzip and locate the ntlmauth.dll file in the appropriate folder (x64, x86, IA64).
- Copy this file to
$InstallationDirectory
under SystemFiles>Java>(appropriate Windows folder)>bin
- Restart Mathematica.
Let's hope Wolfram decides to include this in the next version.
Update for V10
Now in V10 jTDS 1.3.1 is the standard. No need to manual upgrade.