If you try to open a document from a document library from MOSS or Windows Sharepoint Services, you get prompted for authentication even you've setup all your kerberos authentications and correct zones for IE. And you're pulling hair out of your head. It turns out that this is caused by issue in Vista and the WebDav component.
When you open a a document in Office 2007 stored in Sharepoint, the office programs use the OS WebDav component to communicate to the Sharepoint server. However to successfully pass your current Windows authentication through to the server, it is very sensitive to what proxy and zone settings you have setup in IE for the user. The best way to to mandate these IE settings via group policy or your favourite management tool for your users.
Until a SP1 of Vista is available (If it is fixed), your workaround is to specify a proxy settings in IE and select "bypass proxy server for local addresses".
If you use IE and choose to configure your client using automatic configuration script, instead of checking the "Automatically detect settings", you may need to apply this hotfix http://support.microsoft.com/kb/941853/.
Updated: 3/1/2008, Well with vista SP1 RC, it is no longer prompting me.
