Deployment Manager will never talk directly to your web service application, so it doesn't need the user credentials for the service. The address you should be adding in the 'Add target machine' dialog is the address and port of the Deployment Agent, not your web service. So, if your agent is installed on the same machine as the Deployment Manager server, you'll probably want to use 'localhost' in the address field (i.e. next to the 'http' label), and leave the port field as '10301'.
Technical Lead - SQL Source Control | DLM Automation