Turn the 'Automatic Logon to Intranet sites' on within the security policies of the user's IE browser. this will stop the login dialog box from appearing.
I got my site setup to include a virtual directory located on a remote share. The remote share can be browsed via the 'file system object' in an ASP page. When setting up the virtual directory in IIS Config, it required a static user to 'connect as' (user/password). I setup a new user...
type 127.0.0.1 in your browser and verify that you can access the site. Also check to see if your ISP blocks subcribers from creating personal web sites.
If the user is not getting user/password dialog box then they probably have the 'User Authentication' set to 'Automatically allow logon in Intranet zones' checked off under the security policies in IE.
For IE 6.0 Check:
Internet Options>Security>Custom Level>User Authentication (the last option)
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