Connect to external database authentication type

What is the preferred authentication type when setting up a new connection from Sharepoint 2010 to an external SQL Server database?  Is it better/easier to use windows authentication or SQL Server authentication?  My database administrator gave permissions to a SQL account.  I tried to configure a connection but got 'permission denied'.  On the new data connection should I select "connect with impersonated windows identity" and use some windows service account for this?  What permissions need to be set up on the SQL Server for this authentication to work?

thanks,