Hi,
As your connection is a Data Server connection, there's really no point testing it in the Admin Console - this will test using both Compatible and Dynamic, and (as you are seeing) the Compatible test fails, as the connection is not Compatible-query. I would stay out of the Admin Console altogether and test just via the Data Server dialogs to avoid confusion.
A quick sanity check. When you are creating a new FM model, and you are in the New Project dialog box (where you specify a name and location for the project), are you definitely checking the "Use Dynamic Query Mode" check box?
Cheers!
MF.