Problem Description
With Office 2007 running on Windows Vista, opening an Office document hosted on 
a SharePoint (i.e. WSS 3.0 or MOSS 2007) site results in a prompt for login 
credentials even if the user is already logged on with an account that has 
access to the document. Canceling the credential prompt may still (but not 
always) allow the document to open in read-only mode.
Potential Workarounds
Go to IE7 -> Internet Options -> Connections -> LAN Settings.

 *   Behavior 1: Clearing all checkboxes on this dialog will cause the 
credential prompt.
 *   Behavior 2: Automatically detect settings - enabling this option will 
prevent the prompt if it effectively enables a proxy server and enables 
bypassing the proxy for local addresses.
 *   Behavior 3: Use a proxy server - enabling a proxy server in conjunction 
with enabling "Bypass proxy server for local addresses" will prevent the 
credential prompt.
When the user does not have a proxy in the environment, it's still possible to 
work around this issue by setting a "fake proxy" and "blanket bypass" as 
follows in IE7's LAN Settings dialog.

 1.  Click the Proxy Server checkbox. Set the address to "fake proxy" without 
the quotes and the port to 80.
 2.  Click the "Bypass proxy server for local addresses" checkbox.
 3.  Click Advanced and put an * in the Exceptions list to cause all addresses 
(including external ones) to be bypassed.
Source:

http://blogs.msdn.com/sharepoint/archive/2007/10/16/known-issue-office-2007-on-windows-vista-prompts-for-user-credentials-when-opening-documents-in-a-sharepoint-2007-site.aspx


Regards,
Aaron Saikovski
Readify - Senior Consultant
Suite 206 Nolan Tower
29 Rakaia Way
Docklands, VIC 3008
Australia
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