I have a customer using OWA to get their email. He has a new netbook running Windows 7 Starter edition, and IE 8. We can successfully login to OWA and we can see the layout as well as the reading pane complete with email contents within the reading pane. However, if he clicks an email to open it he is being asked to login to the local machine. Attempts to login fail and it continues to ask for the user and password. We know we are using the correct user and password for the local machine and we have also tried the exchange user and password. This occurs for any action taken within OWA, composing, forwarding, replying, etc, anything that navagates us away from the initial OWA screen.
I've applied the Email Security updates (S/MIME control) on the client and still have the same problem. I don't think this is the same problem that most people have reported, ie the broken image icon, as we never get into a new browser window since we can't get past the login prompt.
I'm sure this is something simple and I'm probably just getting focused on the wrong thing so any help would be greatly appreciated.