After a recent installation of CRM 2011 which seemed ot work, I found that users could not connect to the CRM website from their PCs. They were asked to enter their username and password (which was not accepted) and ended up on a 401.1 Unauthorized page. This was despite CRM working absolutely fine on the server.
Clearly the issue was an IIS one. Eventually I discovered that kernel-mode authentication was not enabled for the CRM website. I enabled the settting and all was well. For details of how to change the setting, refer to this article.