What version of Server?
What type of authentication (Local or Active Directory)?
What is your data source?
Sorry I missed out that details:
1. I am using 9.2 server as well as desktop versions
2. Active Directory
3. @ Jennifer : I have my data source in Sql Server, Live
Do I need to have any setting to be changed in Sql Server?
You need to change the data source. You are seeing authentication options that come with "Use Windows Authentication" type. If you select "Use a specific username and password" then you will get the embedding option at publishing time. You can actually use windows logins here, they don't have to be SQL logins.