The Type I driver isn't that good. Why the requirement for a zero-cost driver? Sounds like it's pretty expensive in terms of time working around the problems. I couldn't find anything on JRun's site mentioning included JDBC drivers (WebLogic comes with drivers)
http://www.openlinksw.com/info/pricing.htm That's a pricing list for some MS SQL Server Type II/IV drivers. Looks like the max you could pay if $6000. If your site needed that many concurrent connections, $6000 is cheap insurance.
As for the Type I driver, it should work. Confirm using MS Query (or another ODBC-using application) to make sure that the client's ODBC configuration is correct. You may need an updated MS SQL ODBC driver or you may have a corrupted installation. Make sure the driver DLL isn't found in more than one place.
Jesse