After some research, it seems that I cannot find others reporting any similar issue. And there is no offical announcements about changes for SQL connection in PowerApps. Below is the What's new blog page:
Is this issue happening when you try to create a new SQL server connection? Have you created the SQL server connection successfully before in PowerApps? In other words, do you have old SQL server connection that is working in your connection list?
Community Support Team _ Mona Li If this post helps, then please consider Accept it as the solution to help the other members find it more quickly.
Thanks for diving into this. Yes, I currently have 3 old SQL Connections to my PowerApps applications that connect perfectly fine and are currently in use. If you see in my original post I actually took screen snippets of the old ones. They have a different UI than the new ones.
In the old connections it asks you how you want to connect your data (I'm using an on-premise gateway) the server name, the database name, and then your credentials and authentication type.
In the new one (the only SQL Server connection under connections) it asks authentication type, server name, database name, credentials, and then you select the gateway.
Completely different user interface in the current connection and it returns a credential error which I know is wrong because my current SQL connections are connected with the exact same credentials and gateway.