It was all working fine, no problem until a few days ago "open with explorer" option was disabled and the use of the connection such as //sharepoint.domain/PublishingImages reported "The operation being requested was not performed because the user has not been authenticated.".
While I can work with IE9 beta and all other tools such as SharePoint Designer 2010, only explorer view didn't work on any of the client computers.
Since this was a new problem that all clients have, it must be related to server settings. That was my initial thought. By looking at all settings in the Central Admin site I narrowed it down to Site Collection Features in Site Collection Settings. I tried to enable this feature. I also enabled "Open Documents in Client Applications by Default" which was disabled. Followed other suggestions I changed IE settings to add sharepoint.domain site to trusted zone. Further, I followed this KB article http://support.microsoft.com/kb/841215/ to set BasicAuthLevel to 2... I don't know which one helped but at least the Windows Explorer View was back then.
But the problem occurred again after reboot, I changed many settings back since, and was all working, mysteriously. I changed all settings again, followed my steps recorded but with no luck. Finally I found why it's not working: it's not webdev, not trust zone, not features on the site, it's the REGISTRY! Since I have been working on the registry with the last attempt, I found that this caused the problem.
Follow the two KB articles: http://support.microsoft.com/kb/841215/ and http://support.microsoft.com/kb/941050 I was able to find the two keys that force Basic authentication on client computer.
As it shows the level must be set to 2 to force the use of this feature even in non-SSL connections. Then to explicitly tell Windows to use basic authentication for the URLs provided.
After editing, close Regedit, restart WebClient service on client computer, then it should work.
