I had to refresh myself a little but I was able to get this warning. To get it I:
1 - Created a user in SQL Server that required a SQL server password and did not user Windows Authentication.
2 - I then added the user to the Northwind DB.
3 - Created an InfoPath form, and made a connection to a table in Northwind with that user. Then I got the warning.
Off hand, you could try to use Windows Authentication for the SQL Server user. I do not know what sort of constraints you may have, so that may not be an option.
Another option, going down a completely different track, would be to create a web service to return your data. You can code the query using ADO.NET, have the password live in the web service and then return the data to your InfoPath form. Then you do not have to worry about putting a password into your InfoPath form. I have not yet to date made a direction connection to a database, I have always used a web service.
Jason
http://www.k2distillery.com/