Hi,
I believe you may have opened an incident on this as well.
I'm confused about your setup.
If you are using Microsofts isqlw to ASE, this probably shouldn't work as it is meant to connect to SQL Server. The reason it might is because SQL Server and ASE used to be the same server back in the day.
Looking at MS website, isqlw doesn't include an option for password encryption as sybase isql
does (-X).
I also see MS isqlw might be End Of Life and was replaced by MS SQLCMD which has encryption parameter (-N).
I would suggest using sybase/sap products isql or dbisql/interactive sql (GUI). These come with the SAP SDK for ASE installation.
Regards,
Ryan