401.3 Anonymous only security ACL issue

Hi all,
I have been searching for an answer on this but can't quite seem to pin
it down.

I have a Windows 2003 64-bit server running IIS 6.0. I have set the
Directory Security at the root level (Web Sites down) with the
following:
Enable anonymous access: true (using IUSR_ComputerName)
Integrated Windows authentication: false
Digest auth: false
Basic Auth: false
..NET passport: false

I have also set the permissions on NTFS to allow read access on the
directory for the IUSR account.

Whenever I browse to the url I get the 401.3 error. If I flip the
Integrated Windows Auth to true I can then view the app, but other
users who are not in the local Admin group on the server get a basic
auth prompt for the server.

Any ideas?
Thanks,
Tom