CF10 to SQL 2005 works for me. That is an odd error you get. If I change CF10 datasource to "wrong" user or password I get different error:
Connection verification failed for data source: "DSN"
java.sql.SQLInvalidAuthorizationSpecException: [Macromedia][SQLServer JDBC Driver][SQLServer]Login failed for user 'wrong'.The root cause was that: java.sql.SQLInvalidAuthorizationSpecException: [Macromedia][SQLServer JDBC Driver][SQLServer]Login failed for user 'wrong'.
Perhaps details in coldfusion-out.log from ColdFusion10\cfusion\logs will have some details that will lead to a solution?
HTH, Carl.