I am sorry about a typo in my original message. It is 'db2admin' and
not 'db2adming' that I am using to connect to the database. I am using
command line processor for these operations. The instance owner is
also db2admin and all the databases in this instance were also created
using db2admin. In short, db2admin is the only valid ID that this
configuration recognizes. This is UDB PE 8.1 and the database/intance
resides on my local Win XP.

So, in CLP:

Case 1: Issuing the following series of commands:

a. CONNECT TO SAMPLE user db2admin using xxxxx

Database Connection Information
Database server = DB2/NT 8.1.3
SQL authorization ID = DB2ADMIN
Local database alias = SAMPLE

b. LIST APPLICATIONS

SQL30082N Attempt to establish connection failed with security reason
"24" ("USERNAME AND/OR PASSWORD INVALID"). SQLSTATE=08001

Case 2: Issuing the following series of commands:

a. ATTACH TO DB2 user db2admin using xxxxxx

Instance Attachment Information
Instance server = DB2/NT 8.1.3
Authorization ID = DB2ADMIN
Local instance alias = DB2

b. LIST APPLICATIONS - This command successfully executes now.

So, basically, even though I am using the same userid and password
for instance attachment as well as for database connection, I am
required to 'explictly' attach to the instance to issue LIST
APPLICATIONS; even though database connection implictly attaches to
the instance.

Is this correct? Thanks to everyone who is helping me understand
this.

TIA
Raquel.