I am have been fighting this error in IIS 7.5 for sometime now, and no solution I find seems to help. As I understand it, a 401.2 error means that the browser and the site in IIS are using two different types of authentication.
I have two Web Services hosted in IIS 7.5. Web Service A makes a call to Web Service B. This is where the 401.2 error happens. Both Web Services have Windows Authentication Enabled with 401 Challenge. The only enabled provider on each is NTLM. The Web.Config for both services is set up to have
<authentication mode="Windows" />
Here is what the call from Web Service A to WebService B looks like:
WebServiceB.Credentials = new System.Net.NetworkCredential("ValidUser", "ValidPW", "ValidDomain");
var output = WebServiceB.DoSomething(input); //Throws 401 WebException
As far as I can tell, both the Web Services and IIS sites should be using Windows Authentication, and nothing but Windows Authentication, yet I continue to get these 401.2 errors. Why?