Transitioning from Internet Information Services 6.0 to 7.0 is as big of a shock as going from Windows to another platform. Microsoft has moved around and scattered all the settings. This makes troubleshooting an issue very difficult. The tight security in IIS 7.0 will cause most new website to fail loading in the browser. The error message user would receive in the browser is "HTTP Error 401.2 - Unauthorized. You are not authorized to view this page due to invalid authentication headers."
Correcting this issue requires couple steps:
1. Select the website under "Default Web Site" tree.
2. Double click the "Authentication" icon under IIS icon group.
3. Double clicking the "Authentication" icon will bring up the "Authentication" dialog. We can see on the image that "Windows Authentication" is Disabled.
4. Enable "Windows Authentication"
Mission accomplished. The website is now configured to allow windows authentication.