14 DAY TRIAL // This is a little known issue with the integration of Outlook and Hotmail via Internet Explorer 7. But Microsoft is aware of this problem and is providing the necessary support to remedy the situation. Actually, the integration issue has been around since July 2006 and Microsoft has done nothing to fully resolve it even following the final release of Internet Explorer 7.
In the Redmond Company's own words: "authentication fails when you use Outlook or Outlook Express to try to log on to a HTTP-based mail server if you use Internet Explorer version 7.0."
The issues emerges not only on log on or log out with a client machine running Microsoft Internet Explorer version 7.0 but also if the HTTP server is using digest authentication.
Microsoft Windows Server 2003, Enterprise x64 Edition, Windows Server 2003, Standard x64 Edition, Windows Server 2003, Enterprise Edition for Itanium-based Systems, Windows Server 2003, Enterprise Edition (32-bit x86), Windows Server 2003, Standard Edition (32-bit x86) and Windows XP Professional are all impacted and, for them, Microsoft is delivering Update KB 904942 available via Automatic Updates.