I found a very helpful document that outlines what you need to enable to make it work. Like buttah.
http://office.microsoft.com/download/afile.aspx?AssetID=AM102200291033
Excel Services supports three data authentication methods: Integrated Windows authentication, SSO authentication, and None. Read more here:
More information about SSO:
Tags: Excel, Excel 2007, external data sources, MOSS 2007, query, SharePoint, Single Sign On, SQL, SSO