Last week on the local SharePoint “Stump the Experts” panel someone brought up the concern that .Net 3.5SP1  “Broke” their SharePoint installation.  We worked through the issue they had seen for a bit and discovered that they had also installed IE8 (B2) at the same time.  Well, I hadn’t seen that so I went out looking for the answer to what they had seen.  Turns out there was an issue during the B2 period with some of the updates installed and the loopback adapter (if you installed IE8 B2 on your servers you know about this with the search provider.)  The enhanced security settings to keep from getting reflection attacks ended up blocking authentication under some circumstances and that’s not a good thing.  You can find a detailed description of the situation and the resolution at Brian’s blog post below.

http://blog.brianfarnhill.com/2008/11/19/ie8-beta-2-authentication-issues-with-host-header-configured-sites/