I've noticed that if I restart Exchange 2007 it will prompt people who have Outlook open to enter their credentials when the server has restarted. This usually results in the user hitting cancel, in which case it will say "Needs password" in the status bar until they restart and not deliver any of their messages. What is it that causes this?
2 Answers
You don't happen to have enabled Outlook Anywhere and configured your client to use the RPC/HTTPS proxy?
I'm seeing this behaviour when I transfer the active mailbox role to another machine in a CCR cluster but I really haven't had time to pin down if this is the actual cause yet.

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1I have Outlook anywhere configured and several remote sites using it. I don't get that message when I restart our Exchange server. However, I have seen that message when a box is disconnected from the network and it can no longer authenticate to a DC or connect to the Exchange server. However, in my case when I cancel the message and click on the status in the lower hand corner, everything returns to normal pretty quickly. – Mr Furious Nov 14 '09 at 00:31
i know this is an old thread but...
i just ran into this tonight. i wasnt sure why it would happen.. it wouldnt even prompt for domain creds but \user and obviously putting in the domain password was useless..
well, another guy and myself downed our own exchange server and i was not prompted and he was. im running OL2010 and he is OL2007 sp2.
look back at client site and reboot their box again. ol2007 sp2 clients prompted to login to the box. clicking cancel gave the 'need password' in the tray. closing and opening outlook showed immediate success. ol2007 sp1 clients did not prompt at all...
im done with this for the day but want to see how the prompting client acts when fully patched.... or i could just be on a wild goose chase....