SSPI on a virtual directory

I'm running into a snag when using an SSPI AppPool.   This appPool runs fine when used on the main website, but when you create a virtual directory off of the site and switch the appPool to the SSPI appPool it bombs.
 Error:
Login failed for user ''. The user is not associated with a trusted SQL Server connection. Description: An unhandled exception occurred during the execution of the current web request. Please review the stack trace for more information about the error and where it originated in the code.

Exception Details: System.Data.SqlClient.SqlException: Login failed for user ''. The user is not associated with a trusted SQL Server connection.
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