1) Open AD Users & Computers. Expand the Users OU, right-click on the IUSR_ account and select 'Reset password' Reset the password to anything you want (however, it can't be blank).
2) Open this User Account's properties and verify that the account is not locked out. Also, make sure that 'Password never expires' and 'User cannot change password' are selected.
3) Repeat steps 1 & 2 for the IWAM_ account. Close AD Users & Computers.
4) Open Internet Information Services (Start | Administrative Tools)
5) Expand | Web Sites
6) Right-click on 'Default Web Site' and select Properties.
7) Go to the 'Directory Security' tab and click the Edit button under 'Authentication & Access Control'
8) Enter the new password for the IUSR_ account and click OK.
9) Enter the password again to confirm and click OK.
10) Click OK.
11) Open a command prompt and enter: iisreset
12) At the command prompt, enter the following commands:
cd c:\inetpub\adminscripts
adsutil SET w3svc/WAMUserPass (Where = the password you entered for the IWAM_ account in AD Users & Computers)
c:\windows\system32\cscript.exe "c:\inetpub\adminscripts\synciwam.vbs" -v
iisreset
Once you have all of this done authentication should work no problems.