Logon Failure Security Event 534 and Impersonation

I have an app that uses impersonation to gain access to a database (on server separate from IIS).  The app connects to the database using a trusted connection and seems to be working just fine.  However, we get these logon failure events in the security event viewer:
Event Type: Failure Audit Event Source: Security Event Category: Logon/Logoff Event ID: 534 Date: 9/27/2010 Time: 7:49:06 AM User: NT AUTHORITY\SYSTEM Computer: XXXXXXXXXX Description: Logon Failure: Reason: The user has not been granted the requested logon type at this machine User Name: pticket Domain: YYY Logon Type: 5 Logon Process: Advapi Authentication Package: Negotiate Workstation Name: XXXXXXXXXXXXXXX Caller User Name: NETWORK SERVICE Caller Domain: NT AUTHORITY Caller Logon ID: (0x0,0x3E4) Caller Process ID: 5960 Transited Services: - Source Network Address: - Source Por ...