It is 2011, right? Yes, but there are still plenty of SharePoint 2007 sites out there running on Windows 2003 servers. Those aren’t the latest and greatest versions, but until the time when those servers and applications are upgraded, issues will arise and need to be resolved.
One such issue is opening the explorer view in SharePoint 2007 document libraries. Specifically, Explorer View may prompt users for credentials and even if they enter their credentials, they keep getting prompted. The workaround is to select "Cancel" but here’s what I did to resolve this problem.
Without getting into too much detail (the white paper referenced below goes into quite a bit of that!), the credentials prompt is appearing because the site is not enable to use the WebDav explorer view. To force that view, the WebClient service needs to be enabled on all servers providing web services, usually Web Front End servers also referred to as WFEs. On Windows 2003 servers, the WebClient service is disabled by default. Just log into each web server, open the Services console and enable and start the WebClient service.
No IIS Reset or server restart is required.
Reference: Microsoft White Paper Understanding and Troubleshooting the SharePoint Explorer View – If you support a SharePoint environment, this is a great resource because the Explorer View is very complex and there will be problems. J