I recently ran into an issue where IIS was prompting me for a username and password. I immediately went to IIS and checked under Directory Security the Authentication and Authorization settings. Anonymous accesss was enabled along with Integrated Windows authentication.
Since Digest and Basic authentication were disabled I was confused until I found this post: http://stackoverflow.com/questions/207737/asp-net-authentication-modeforms-so-why-am-i-getting-a-windows-login-prompt
You have configured anonymous access in IIS Administrator, but the IIS user does not have permission to access the filesystem, defaulting to the login dialog to authenticate as Windows user.
Sure enough the IIS guest account didn’t have the proper permissions to the wwwroot directory. Once I added the account, I was no longer prompted to login.
A more detailed description of IIS Authentication can be found here: http://msdn.microsoft.com/en-us/library/aa292114(VS.71).aspx