More info can be found here: MSDN Trusted Subsystem
Web Service need to have impersonate as false in the web.config file to be able to use the application pool account as the credentials for the database.
To created a trusted connection you must create mirrored system accounts on the web server and on the database server. They must have identical names and passwords. The name must then be used as the Application Pool identity for the virtual web server running the web application.