I got the similar error when I tried to set IIS authentication to Windows Integrated authentication and tried to host WCF services with wshttpbinding set to use windows credentials. depending on the binding you need to let WCF runtime handle the authentication( IIS webapp should be set to 'Anonymous' authencitaion)
If you still have issue, it would help if you could provide more details on hosting environment ,WCF binding and authentication machanisam you are trying to use.
Hope this helps...
Hari