I can not seem to get sql server to recognize my credentials.
Asp.net recognizes me when I login but when I execute a sql command I get a login failed message.
This is key = The IIS server and SQL server are on different machines. You're facing the classic double hop issue. Think of it in this way:
Thus once you enable delegation as mentioned by Remus, your SQL Server will trust the credentials your IIS server is presenting on your behalf.
In terms of security, under delegation, it would be wise to choose:
Trust this computer for delegation for specified services only | Use Kerberos only | and then underneath the "Services to which this account can present delegated credentials" make sure you explicitly set only the server/port you need.