I believe that you have set up your dataset / database with password. For some reasons when crystal report have to connect with the dataset / database you also have to supply the password for your database in order for it to connect..
Dim rpt As New prreport2()
dim rec as Adodb.Recordset
rec = gSQL("select * from table1")
That was my code in VB i'm not sure how to do it in XML.. but that was the idea that i have..
hope this helps!