Virtual Dirs in Windows 2008

Hi,

Is it me or is Virtual directories in Windows 2008 (With thier own starting point) not allowed any more?

Every virtual directory we create on our win2008 box when we browse the virtual dir (www.domain.com/virt) we get (401 - Unauthorized: Access is denied due to invalid credentials.)

I have even tried manually creating a virt dir but same results.
Works fine for static content like html but not asp.net 2 application with its own starting point?

Any one else having this problem?

Regards
Dave