The Microsoft Business Connectivity Services Team Blog is quickly becoming one of my favorite SharePoint blogs. Their most recent posting, Authenticating to Your External System,  does an excellent job of breaking down the available authentication modes available.

Security is one of the most important things to consider when connecting to external systems using Business Connectivity Services, and this article is a great place to get started. Check it out at: http://blogs.msdn.com/bcs/archive/2010/03/12/authenticating-to-your-external-system.aspx

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