Resolution:
The functionality (Domain User Authentication) is provided by the JDBC driver and to enable it you need to specify "IntegratedSecurity=True" as part of the Connection URL (via Manager Configuration -> Database -> Reporting Database Connection) and copy the "sqljdbc_auth.dll" file to a directory on the Windows system path where it can be loaded e.g. %SystemRoot%.

Implementing those two changes would allow you to leave the "User" and "Password" configuration field blank or simply ignore whatever value is configured there.

Kindly note that the JDBC driver does not support the integrated authentication when the driver runs on non-Windows operating systems. The driver also does not provide any functionality to supply Windows authentication credentials, such as user name and password, when connecting to SQL Server from non-Windows operating systems. In such cases, the applications must use SQL Server authentication instead.

Ref: http://msdn.microsoft.com/en-us/library/ms378428.aspx

Using Windows authentication with SQL Server