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You may not be able to use the fully-qualified domain name (FQDN) to connect to a Web folder on a Microsoft Internet Information Server (IIS) Web server that requires basic authentication.
For example, when you try to use the Add a Network Place Wizard to add a Web folder for server.domain.company.com to "My Network Places," you are prompted for a user name and password to connect. When you enter a valid user name and password, you are again prompted for a user name and password.
This problem occurs because the Windows XP Web Distributed Authoring and Versioning (WebDAV) redirector sends basic credentials with an FQDN server name, which is not accepted by the IIS Web server.
To work around this problem, connect to the server by using the NetBIOS name (for example, use http://server) instead of the FQDN or type the NetBIOS name of the server, followed by \user name in the User name box instead of just the user name. For example, type server\user name instead of just user name, and then type the password in the Password box.
Microsoft has confirmed that this is a problem in the Microsoft products that are listed at the beginning of this article.