ASP.NET questions should be posted in the ASP.NET forums (http://forums.asp.net).
The problem isn't server side but rather client side. When you have Win auth enabled the server sends back a challenge. The browser sees that and displays the prompt. The browser needs to be configured to allow Win auth requests.
To do that you can go into your browser's options and add the site to the Intranet zone (or more rarely the Trusted Sites). You should also confirm that Windows auth is enabled for that zone (using the button in that same dialog). When the
server then sends a challenge the browser is authorized to return your Win token.
Michael Taylor
http://msmvps.com/blogs/p3net