In unixODBC 1.8.8 and earlier, isql and DataManager call SQLConnect, passing a database username and password even if you do not specify them. isql takes two optional arguments after the DSN which are the database username and database password. If you omit them, isql passes empty strings to Easysoft ODBC-ODBC Bridge which believes a username and password were specified and hence does not pull the TargetUser and TargetAuth out of the DSN.
If your ODBC driver requires a username and password and you are using isql or DataManager, you must specify them either on the command line or in the DataManager dialog, when prompted.