I saw this issue again today. Outlook 2007 & 2010 were prompting for username and password at startup and randomly during use.
I’ve used this fix a couple of times now. In IIS Manager navigate to the website that contains your Exchange Virtual Directories (In Exchange 2007 this is Default website, in SBS2008 this is SBS Web Applications)
In turn highlight the following Virtual Directories:
Once highlighted select Authentication, right click on Windows Authentication and select Advanced Settings and put a check in the enable kernel-mode authentication. Do this for each directory.
Careful as when upgrading to Exchange 2007 Service Pack 3, it reset the setting on 2 of the 4 directories, so these needed to be set back to enable kernel-mode authentication.
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