To setup Windows Authentication in IIS7, please use the following instructions:
To set up Active Directory and Windows (NT) authentication in IIS7, you will first need to install the Windows Security Server Role. To do this, open your Server Manager and go to Roles > Web Server (IIS):
You will need to scroll down the page until you get to the ‘roles’ section and install the ‘Windows Authentication’ role. This will allow you to setup windows authentication under your Intranet website.
Once that is complete, return to IIS7 and select your Intranet website and ‘Authentication’:
From here, disable ‘anonymous access’ and enable ‘windows authentication’:
You will now be able to connect to this website using NT Authentication.