Using Pack.Conf. SQLServer To Store Source Conn. Str. But Its Not Working.

Problem:

i have configure a SSIS package in BIDS to use an Env. Var. to store the location of the .dtsconfig file for the connection to my SSIS configuration table in SQL. I than use another Env. Var. to retrieve the source conn. str. from my SQL SSIS configuration table. Once my package loads, i select a simple sql task to execute, but it comes back and says that it cannot make the connection. How does the SQLServer connection string know what password to use? This is where i'm confused. I believe it loads the connection string for my source database but it doesn't get the password. I just started working in SSIS and i'm trying to get my head around all of the dynamic options of SSIS. I appreciate your time and help.

Problem Details:
package A has 1 sql execute task
Env.Var. 1 stores the location of the .dtsconfig file that stores the connection data to ssis sqlserver configuration table (used to store additional package properties in sql server)
Env. Var. 2 stores the connection string of my source database.
package protection level set at "EncryptSensitiveWithPassword"
the sql task is assigned to the source connection string,right click and execute task.

here is the error:
Failed to acquire connection "source database" Connection may not be configured correctly or you may not have the right permission on this connection.

I'm executing this from within BIDS just to check that my setup is going to work.

Here are some items i've tried or troubleshoot:

1. If I roll back the 2 package Configs or disable using package configs and replace my original source connection manager and create a new connection manager than i can get the sql task to successfully execute again. It won't usually work by just disable the package configs. i had to delete the existing source connection manager.


2. create a new package trying the same steps as above.

3. change the package protection level to "encryptSensitiveWithPassword" expecting this to retain the source connection password. I tried a variety of package protection levels.

Thoughts???? help.....please....