Default credentials not working

Question

When trying to connect to my web service from a client application, the System.Net.CredentialCache.DefaultCredentials doesn't authenticate properly. I can see in the event viewer on the server (windows server 2003) that my domain/username are getting passed properly but it gives a 529 error. If I hard code in my credentials using: Service.Credentials = new System.Net.NetworkCredential("Username", "Password", "Domain") it authenticates properly. Is there some sort of intermediary user account that doesn't have the proper priveleges? Also, in the web.config I've set and . In IIS I have anonymous access turned off and integrated windows authentication turned on.