well got it working.
This missing piece was that I hadn't delegated the webservice account to the sql server service! duh
however, I am still using the IP address in my connection string. Perhaps that works because I haven't changed anything on the SQL server, it is still running as system or network service, whatever is default.
so I finally have ADFS credentials passing through to SQL server. very cool! again, depending on your security this might not be desirable but I am glad that I have got it working and can document the process now for my lab!
thanks for your help Joe. I'd be happy to try to see why the IP is working if you want to explore that, I'll most likely be using a netbios or FQDN in production anyways.