Anonymous access in IIS is prompting for credentials

I'm trying to set up anonymous access for my LAN on IIS on Windows XP.

The problem is that when I navigate to the site via a web browser, it asks for the username and password.

Here are the settings in IIS > Website Properties > Directory Security:

[X] Anonymous access  
Username: IUSR_computername 
Password: ********** 
[X] Allow IIS to control password  

[ ] Basic authentication  
[X] Integrated Windows authentication

Note: the computer's name was changed, so IUSR_computername is actually an old name for the computer. However, it's the same name of the account I see in Computer Management > System Tools > Local Users and Groups.

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I tried changing the password in Computer Management for IUSR_computername, then in IIS unchecking "Allow IIS to control password" and entering in the same exact password, but that didn't help.

Update: I'm trying to set up a virtual directory which is hosted in My Documents folder. From what I understand, this isn't working because the IUSR account doesn't have access to the folder. I confirmed it by trying to use a folder under C:\ and it worked fine.

So I guess my question is how can I keep my folder in the My Documents folder, but also not give too much permissions to the IUSR account? For example, I don't want to add the user to the Users group in Windows, since that would probably give the user too many privileges (e.g. even on other sites). Also, I don't want to use my own username/pw (instead of IUSR), since that would give this anonymous site a user with too many privileges (my account is an administrator on this machine).

Ideally I would want to use a low level user (e.g. IUSR), but selectively give it access to only this one folder in My Documents. Is that possible?

From serverfault Senseful

• In order for the user account used by IIS for anonymous access to actually access a folder, it needs NTFS-level permissions on that folder; so, if you want to publish some folder in IIS anonymously, you'll need to give that account at least read permissions on that specific folder.

  From Massimo

• You must make sure that the IUSR account has permissions to view that folder:

  • Either place the file in a folder where the user has permissions (e.g. C:\ instead of My Documents)
  • Or, give reading privileges to that account via the Security tab in Windows. (Windows XP users not on a domain will need to enable this tab).
  From Senseful