You want all of the work being done on the application server tier, so SASApp would be workspace server to use. Workspace servers require authentication using an external account, that is why the connection using sasadm@saspw won't work. It is an internal account. Internal accounts are only known in SAS metadata. External accounts can be known in SAS metadata and to the operating system host (or other authentication provider). During installation, sasdemo is created in metadata as as well as in the authentication provider (e.g. host, active directory, ldap), so that is why it is successful.
See SAS® 9.2 Management Console Guide to Users and Permissions at http://support.sas.com/documentation/cdl/en/mcsecug/61708/PDF/default/mcsecug.pdf for more information about internal and external accounts.
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