Have a Windows 2003 SP2 member server hosting a single FTP site on port 21 without anonymous access. The Home Directory is set to a local folder (i.e. C:\Folder\FTPSiteFolder\) with Read/Write permissions in IIS. The Users group, Administrators group, System account, and a specific user account for outside access to the FTP all have Modify or greater NTFS permissions. When browsing to the FTP site in IE 7 from inside the network or even locally on the server hosting the FTP site both produce the same results... the login prompt appears but no user account (even the adminsitrator) can login. There is no error message and the login prompt just reappears.
The Windows event log on the server shows a Warning with Event ID 100, Source: MSFTPSVC, Description: The server was unable to logon the Windows NT account 'administrator' due to the following error: Logon failure: unknown user name or bad password. The data is the error code.
NOTE: If I configure Anonymous access the site works fine.