Hey aktrip
You're using mixed mode auth - so you've got the right idea - you need both the .jar and the auth .dll - and as long as the config on the server isn't problematic you should be fine (I've found configuring SQLServer connections for ReadyAPI a little fiddly sometimes and I've had to play with the config settings on the server end - but that was a couple of years ago.
Ok - so this is either a problem with your Connection string/URL or the JDBC driver versions you have.
Have you confirmed you have the correct Connection URL setup (with all required parameters)?
Have you confirmed you have the correct driver versions for the version of SQLServer you want to connect to?
Cheers,
Rich