Unable to get windows authentication to work through local IIS

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You have to whitelist a domain specified in the hosts file in order for windows authentication to work:

  1. Click Start, click Run, type regedit, and then click OK.
  2. In Registry Editor, locate the following registry key: HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Services\LanmanServer\Parameters
  3. Right-click Parameters, click New, and then click DWORD (32-bit) Value.
  4. Type DisableStrictNameChecking and press ENTER.
  5. Double-click the DisableStrictNameChecking registry value and type 1 in the Value data box, click OK
  6. In Registry Editor, locate and then click the following registry key:
    HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Control\Lsa\MSV1_0
  7. Right-click MSV1_0, point to New, and then click Multi-String Value.
  8. Type BackConnectionHostNames, and then press ENTER.
  9. Right-click BackConnectionHostNames, and then click Modify.
  10. In the Value data box, type the host name or the host names for the sites that are on the local computer, and then click OK.
  11. Quit Registry Editor, and then restart the IISAdmin service.

NOTE:
The original Microsoft KB links on this answer were broken and have been removed.
This article provided the instructions for setting DisableStrictNameChecking.

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