I think, server should allow both ntlm and user+pwd logis if is
configured to allow both login modes:
* transparent NTLM authentication (trusted connection)
* current user+pwd authentication

this is due to clients where not all are able to use trusted
connections (read: java jdbc type4). MSSQL server has options to
enable or disable any login mode and most keep both NTLM and
SqlServerUser modes enabled. This way java appservers use plain
sqlserver user account and windows app uses trusted connection.

Slight offtopic as you already have transparent NTLM login code
working. This delphi example checks for user+pwd+domain information.
Fields are given by the user explicitly. So its not a transparent
authentication but more NTLM userdb lookup code to verify user account.
http://koti.mbnet.fi/akini/delphi/ntlmlogin/