Hello friend,
Some times back, i have faced this issue, the scenario was like this. i tried to bind a grid from sql DB, it was working fine with windows uthentication but when i put my web on IIS and tried to access with the webservice, faced same error , i tried to create a seprate user for that particular DB , given full access right ,and able to do.
So the conclusion is check the Db access rights to that method with the specified credential , and chenge it accordingly , and also dont forget to click on set permission for that site from IIS and set the necessary settings
Hope its clear
Regards
D