Does
> this have to be a domain level account?

--------- No, the general mis conception is that it does need to be a
domain account. But, in fact it doesn't. There are a lot of companies
out there that their IT department is not going to create a special
domain account for just to run a small ASP project in two different
boxes.
It works the same as remote connecting to a different machine. Do you
need a domain account for that???? I don't think so.
All you need to do is:
1-Create an Administator user, or an ASP net user in the SQL box
2-Assign read and write privileges to the specific database
3-In the box where you IIS is residing, create the same ASP net user or
admin user with the same password.
4-Give .NET access to the Microsoft.NET folder and the Inetpub folder
5-Modify the machine.config under the <processModel to say
"machinename\user" for user name and for password put down the same
password you have been using on the new user you created.

You should be good to go...
FYI: I did this using a 2000 Server

Let me know if it works for you