Also, keep in mind that Server 2003 and later will run IE in Enhanced Security Configuration mode which will *always* prompt for credentials no matter what the securioty zone settings.
Have you tried accessing this from an actual client machine?
What URL are you using to hit the site and what zone does the client say the site is in?
Dave Dietz
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by: celdridgeMadmanPosted on 2009-07-12 at 16:05:21ID: 24836330
It sounds like your site/server is setup correctly, I suspect it's more of a client issue.
Check the security settings in IE to see how it handles automatic logon. In IE8 it will only do this for sites in the Intranet zone.