Try to remove Network Library parameter from connection string. This way you are forcing the connection provider to use specific protocol. If you disable networking (TCP), it may be that the provider is not able to connect.
Here's some info about Network Library parameter
http://support.microsoft.com/kb/238949
If the Network Library is not provided, application uses protocols in order specified in the SQL Server Configuration Manager, in SQL Native Client 10.0 Configuration, in node Client Protocols. These protocols must be of course enabled on the server side, which in case of the same machine is just located in the SQL Server Network Configuration, in Protocols.
I am using SQL Server 2008 R2, if you are using older, the version of the provider may be different.
Here is a question that looks to be concerned about similar issue:
SQL Server communication protocol issue
Regards
Piotr