I ran into this prompt while trying to launch debugging in VS 2005 using IIS. I quickly found this MSDN online article to solve the problem. Posting here to help anybody else find it quickly. Basically, go into IIS and turn on Windows Authentication under Directory Security. Here’s detailed steps:

To enable integrated Windows authentication

1. Log onto the Web server using an administrator account.

2. From the Start menu, open the Administrative Tools Control Panel.

3. In the Administrative Tools window, double-click Internet Information Services.

4. In the Internet Information Services window, use the tree control to open the node named for the Web server.

   A Web Sites folder appears beneath the server name.

5. 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 choose Properties from the shortcut menu. To configure authentication for an individual Web site, open the Web Sites folder, right-click the individual Web site, and choose Properties from the shortcut menu

6. In the Properties dialog box, select the Directory Security tab.

7. In the Anonymous access and authentication section, click the Edit button.

8. In the Authentication Methods dialog box, under Authenticated access, select Integrated Windows authentication.

9. Click OK to close the Authentication Methods dialog box.

10. Click OK to close the Properties dialog box.

11. Close the Internet Information Services window.