To enable integrated Windows authentication
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Log onto the Web server using an administrator account.
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On the Start menu, click Administrative Tools Control Panel.
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In the Administrative Tools window, double-click Internet Information Services.
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In the Internet Information Services window, open the Web server node.
A Web Sites folder opens beneath the server name.
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You can configure authentication for all Web sites or for individual Web sites. To configure authentication for all Web sites, right-click the Web Sites folder and click Properties on the shortcut menu. To configure authentication for an individual Web site, open the Web Sites folder, right-click the individual Web site, and on the shortcut menu, click Properties.
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In the Properties dialog box, click the Directory Security tab.
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In the Anonymous access and authentication control section, click the Edit button.
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In the Authentication Methods dialog box, under Authenticated access, select Integrated Windows authentication.
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Click OK to close the Authentication Methods dialog box.
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Click OK to close the Properties dialog box.
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Close the Internet Information Services window.
Source:http://msdn.microsoft.com/query/dev10.query?appId=Dev10IDEF1&l=EN-US&k=k(VS.DEBUG.ERROR.WEBDBG_NTLM_AUTHN_NOT_ENABLED);k(TargetFrameworkMoniker-".NETFRAMEWORK%2cVERSION%3dV2.0")&rd=true