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I always wondered what the differences were between creating virtual directory using the IIS and through Windows Explorer (Web Sharing).

I found out today after spending over an hour trying to figure out why I was getting this error when calling my web service from a windows client: WebException: The request failed with HTTP status 401: Unauthorized

The reason is that when you create a Virtual Directory through IIS the default permission for the directory is Anonymous but when using Windows Explorer the default permission is set to Integrated Window Authentication.