A Web Exception occurred because an HTTP 401 - Unauthorized response was received from Unknown

Thie above error has been noted on many messageboards without a clear fix to the issues.
The site is a single sbs 2003 server with a firewall router and windows updated to the latest security updates and a valid GoDaddy SSL certificate with a remote.domain.com dns address
The device is a HTC HD2 from O2 with activesync 6.5

Using Exchange Remote Connectivity Analyzer www.testexchangeconnectivity.com as my test base.
If I use domain\user and the correct password - no problems - successfully green ticks throughout and is able to count over 3000 messages.
If I use the valid email address of this account user@domain.com instead of domain\user it fails with:
An ActiveSync session is being attempted with the server.
  Errors were encountered while testing the ActiveSync session
   Test Steps
   ExRCA is attempting to send the OPTIONS command to the server.
  Testing of the OPTIONS command failed. For more information, see Additional Details.
   Additional Details
  A Web Exception occurred because an HTTP 401 - Unauthorized response was received from Unknown
 
In the logfile C:\WINDOWS\system32\LogFiles\W3SVC1\ex100615.log
2010-06-15 09:10:55 W3SVC1 xxx.xxx.xxx.xxx OPTIONS /Microsoft-Server-Activesync/ - 443 user@domain.com xxx.xxx.xxx.xxx Microsoft-Server-ActiveSync/12.0+(TestExchangeConnectivity.com) 401 1 1326
 (identifiable details removed)
Which other users have stated that 1326 means ERROR_LOGON_FAILURE but it is the same account for both authentication methods.
oma is the same issue - login as domain\user - works successfully, login as email address fails.

I suspect that once the email address login succeeds - the HTC HD2 device will connect.
Kind Regards
fosseitsl