|I am not using forms authentication anywhere in the application or sub sites. I only have Windows Authentication enabled for this directory in IIS7. the main site has Anon access enabled and is working correctly.|
to your 4 points...I can access the site just fine over intranet/vpn so it make me think it can authentication fine if passed the credentials, but I am really new to IIS7 and it's methods of authentication.
I have a very simular settup on my local machine using windows authentication, vista, IIS7. I access my machine from a remote desktop and I get the prompt to enter a username/password. So, I can only conclude that I have something setup wrong on my production machine, but everything looks fine. It is fustrating.