The user instance login flag is not supported on this version of SQL Server. The connection will be closed, error login

I have Windows 7, Microsoft SQL Server 2008 R2 and Visual Studio 2010.

First question: I don't change my password in sql, although my security its setting follow:

• server authentication: sql server windows authentication mode
• login auditing: Failed logins only

and for user sa or any users:

permission: Grant
Login: Enabled

but, my any password will 32 numbers.

Second question:

Then, I never can connect to database in Visual Studio, such as Entity Framework way, with uid and with Integrated Security=True;User Instance=True;

So, when I ctrl+f5 in VS, and I expect true working my app and ajax, I instead get error.

My code:

function FillGrid() {

    $.ajax({
        url: "ajax_process.aspx?cmd=FillGrid",
        type: "POST",
        data: null,
        async: true,
        success: function (dataFromServer) {
            d = eval("(" + dataFromServer + ")");
            alert(d[0].email);
        },
        error: function (XMLResponse) {
            alert(XMLResponse.responseText);
        }

    });
}

My error is alert:

The user instance login flag is not supported on this version of SQL Server. The connection will be closed.

and:

SqlException (0x80131904): The user instance login flag is not supported on this version of SQL Server. The connection will be closed.]

System.Data.SqlClient.SqlInternalConnection.OnError(SqlException exception, Boolean breakConnection) +6352224