How to resolve HTTP Error 401.1 caused by group policies?

Here are the points of my scenario:
1. I have a Windows Server 2003 domain
2. I have a member web server (IIS) running Windows Server 2003 Standard, SP2
3. Linked to an OU, is a GPO with a total 99 (ninety-nine) group policy configurations in the "Security Options" and "User Rights Assignments" areas.
4. When I placed the IIS web server into the OU mentioned in point #3, the web application (Track-IT! Web Client) failed with the Internet Explorer error: HTTP Error 401.1 (see attached JPEG).
5. I placed the web server back into its original container, executed a "gpupdate /force" and answered "Y" to the prompt to reboot. BUT...
6. The error remained after the reboot.
QUESTION: How should I resolve this failure?
HTTP-401-Error.JPG
waforbes100Senior IT SpecialistAsked:
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vdh_techCommented:
Make sure you get a full backup and a system state backup -- preferably with a VSS-aware backup software -- NTBACKUP is fine....

You could try: http://support.microsoft.com/kb/816585
and reapply the default Security Template -- which should wipe any resident GPO's back to installation.
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waforbes100Senior IT SpecialistAuthor Commented:
It turns out that the IUSR_COMPUTERNAME account was locked out! What policy could cause that?
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vdh_techCommented:
There are two IUSR accounts.  One for the domain, and one for the local machine.  Maybe somehow you overwrote one with the other.
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