I have an IIS 7, Windows Server 2008 R2 box with a relatively fresh install. I've deployed a .NET 2.0 application using windows autentication to the server, and from the default website, added it as an application. I updated the IIS authentication to enable Windows Authentication.

When I went to share out the physical directory for the application so that a developer could deploy updates, the users began to receive 401 errors. I can reliably recreate the issue by sharing out the directory of any newly created application. The IIS user has the necessary read/write access to the directory.

What do I need to do to keep web users from receiving 401's while at the same time allowing this developer to have access to the physical directory for deployments?

Thanks in advance!