Integrated Windows authentication was formerly called NTLM. This authentication method sends a hash of the user name and password across the network. Integrated Windows authentication is disabled by default if you install Windows Server 2003 Service Pack 1 (SP1) as part of a slipstream installation of a Windows Server 2003 operating system. If you install Windows Server 2003 SP1 by itself as an upgrade to a Windows Server 2003 operating system, the setting for Integrated Windows authentication is unchanged from its Windows Server 2003 setting. Integrated Windows authentication is enabled by default for Windows Server 2003 operating systems.
Kerberos authentication fails if you are using Integrated Windows authentication, are not using a WINS or DNS name for the server running IIS, and you want to use a local user account or the LocalService account as a worker process identity. It fails because Active Directory does not trust these accounts.Configuring Integrated Windows Authentication in IIS 6.0http://www.microsoft.com/technet/prodtechnol/WindowsServer2003/Library/IIS/5f8fe119-4095-4094-bba5-7dec361c7afe.mspx?mfr=true
KBA-01284: Last updated: November 16, 2016 at 9:31 am;
Keywords: integrated, windows, authentication, IIS, server, 2003, NTLM