ArcSDE 10.1 Connection via ArcGIS Engine
If you have SQL Server (2008 or 2012) and are used to loading layers (pre 10.1) via an MXD and you were NOT using direct connect, you're going to be extremely disgruntled and perplexed when switching to SDE 10.1; your layers won't load any longer. The layers will load correctly in ArcMap as they've always done but if you try to use them in your ArcGIS Engine application, they won't load. You'll get a red exclamation mark next to each SDE layer. The solution is to install the SQL Server Native Client onto the computer where you're trying to run your application. For example, we're running SQL Server 2012, so we downloaded the native client part of the SQL Server 2012 Feature Pack from here https://www.microsoft.com/en-us/download/details.aspx?id=29065 and installed it on the client. After that, everything worked.