Symptom:

I have

• enabled Windows Authentication in IIS7 for the MenAndMice folder, disabled the rest of the authentication schemes. (If you have just installed Windows Authentication please note that you want to restart IIS / iisreset).
• edited the index.htm  ( added the server to the cookie and commented in the SSO / commented out the non-SSO)
• enabled SSO in the M&M Management Console for both IIS and Console
• checked the SSO with the M&M Management Console and it works fine

But when I try to load the index.htm in IE it returns invalid username or password

Problem:

The Windows Authentication in IIS has by default the Kernel Mode Authentication enabled, which blocks the SSO.

Solution

In the IIS Management Console, Windows Authentication -> advanced settings 
set the "Kernel Mode Authentication" to disabled.