(WCF, ASP.NET, Delegation, IIS) == world of hurt

Question

I am using a WCF service running on a windows 2003-SP2 Server with IIS 6.0 inside an asp.net application.
I have another asp.net application (the client) running on the same server attempting to connect to the WCF service.
I am trying to get the client app to connect-as the user logged into the browser to the WCF service.
My error is the dreaded:
The HTTP request is unauthorized with client authentication scheme 'Negotiate'. The authentication header received from the server was 'Negotiate,NTLM'
The website in IIS has:
Annonymous Access: Disabled
Windows Authentication: Enabled
The web.config on both the server and client contain the following:
<authentication mode="Windows"/>
<identity impersonate="true" />
The WCF service has the following in the web.config:
<system.serviceModel>
  <bindings>
    <basicHttpBinding>
      <binding name="MyBinding">
        <security mode="TransportCredentialOnly">
          <transport clientCredentialType="Windows"/>
        </security>
      </binding>
    </basicHttpBinding>
  </bindings>
  <client />
  <services>
    <service name="ThirdPartyServices.ThirdPartyService" behaviorConfiguration="ThirdPartyServices.ThirdPartyServiceBehavior">
      <!-- Service Endpoints -->
      <endpoint address=""    binding="basicHttpBinding" bindingConfiguration="MyBinding" contract="ThirdPartyServices.IThirdPartyService" />
      <endpoint address="mex" binding="basicHttpBinding" bindingConfiguration="MyBinding" contract="IMetadataExchange" />
    </service>
  </services>
  <behaviors>
    <serviceBehaviors>
      <behavior name="ThirdPartyServices.ThirdPartyServiceBehavior">
        <serviceAuthorization impersonateCallerForAllOperations="true" />
        <!-- To avoid disclosing metadata information, set the value below to false and remove the metadata endpoint above before deployment -->
        <serviceMetadata httpGetEnabled="true" />
        <!-- To receive exception details in faults for debugging purposes, set the value below to true.  Set to false before deployment to avoid disclosing exception information -->
        <serviceDebug includeExceptionDetailInFaults="true"/>
      </behavior>
    </serviceBehaviors>
  </behaviors>
</system.serviceModel>

The Client has the following in it's web.config:

<system.serviceModel>
    <bindings>
      <basicHttpBinding>
        <binding name="BasicHttpBinding_IThirdPartyService" closeTimeout="00:01:00"
          openTimeout="00:01:00" receiveTimeout="00:10:00" sendTimeout="00:01:00"
          allowCookies="false" bypassProxyOnLocal="false" hostNameComparisonMode="StrongWildcard"
          maxBufferSize="65536" maxBufferPoolSize="524288" maxReceivedMessageSize="65536"
          messageEncoding="Text" textEncoding="utf-8" transferMode="Buffered"
          useDefaultWebProxy="true">
          <readerQuotas maxDepth="32" maxStringContentLength="8192" maxArrayLength="16384"
            maxBytesPerRead="4096" maxNameTableCharCount="16384" />
          <security mode="TransportCredentialOnly">
            <transport clientCredentialType="Windows" proxyCredentialType="None"
              realm="" />
            <message clientCredentialType="UserName" algorithmSuite="Default" />
          </security>
        </binding>
      </basicHttpBinding>
    </bindings>
    <behaviors>
      <endpointBehaviors>
        <behavior name="Delegation">
          <clientCredentials>
            <windows allowedImpersonationLevel="Delegation" />
          </clientCredentials>
        </behavior>
      </endpointBehaviors>
    </behaviors>
    <client>
      <endpoint address="http://myserver/myapp/appService.svc"
        binding="basicHttpBinding" bindingConfiguration="BasicHttpBinding_IThirdPartyService"
        behaviorConfiguration="Delegation"
        contract="ThirdPartyService.IThirdPartyService"
        name="BasicHttpBinding_IThirdPartyService" />
    </client>
  </system.serviceModel>
Above all of the public methods in my service, I have:
<OperationBehavior(Impersonation:=ImpersonationOption.Required)> _
(Yes I am unfortunately forced to write in VB.net)
Now as far as I can tell from every blog, forum, article or any other source I could find, this should work. 
Oddly enough it does work if I have the WCF service deployed in production (IIS 6) and deploy the client app
on my Dev machine which runs IIS 5 in windows XP (same msi as deployed in production, same settings in IIS). 
Anyone have any idea why this would be happening?
Thanks everyone!