Most of the readers of this blog probably encountered this issue already, a bi-product of W2K3 SP1 and Windows XP SP2. Since I installed W2K3 SP1 only yesterday on a server while migrating from .NET Beta2-to-RTM on my office network it was a new mystery to solve. Of course, since I thought it had something to do with installing VS2005 I was sidetracked for a bit.
The problem, any IIS sites requiring NT Authentication prevent you from logging in. It's not VS2005, it's not an Application Pool identity, it's not an IIS configuration issue. It's a Service Pack feature.
From the Microsoft Knowledgebase article:
"Windows XP SP2 and Windows Server 2003 SP1 include a loopback check security feature that is designed to help prevent reflection attacks on your computer. Therefore, authentication fails if the FQDN that you use does not match the local computer name."
The fix is to go into the registry and add the DisableLoopbackCheck DWORD to the ...\CurrentControlSet\Control\Lsa key. I did as instructed, rebooted, and I was back in IIS Happyville.