Recently I was working on a project where we have switched the authentication from Windows to NAVUserPassword. To access different databases and instances we have created different config files and have used them in our shortcut to launch them, everything was working fine but when I try to debug an issue, I was getting the following error, which complains about the DnsIdentity
The key is when you launch the debugger it uses the config file (ClientUserSettings.config.) located at C:\Users\YourUserName\AppData\Roaming\Microsoft\Microsoft Dynamics NAV\70 and depending on the version you are on it would be 80 or 90 folder. It does not use your custom config files you have created to launch the application.
So, you need to make sure this file is also updated with proper authentication using the ClientServicesCredential which should be NAVUserPassword if you are using UserName/Password. In my case everything was set properly except the DnsIdentity Property value which is blank.
Once I updated the DnsIdentity Value with proper subject name which is the CN name , the debugger started without any issues. For more information about DnsIdentity and Certificates please check the following link