I had this same issue. However, my solution was different and the issue seemed different as well.
I had been working on a ASP.NET 2.0 web application, using VS 2008. Everything was working fine with the built-in IIS server. I hadn't opened this project for about a week and then when I chose "View in browser" in VS, I was prompted for my windows login creds. This project never did this before, so I was a bit baffled. I checked all the web.config settings and everything seemed fine. My project settings seemed correct as well. I decided to test the project by opening this same project in VS on a separate dev box on my network using a network path. I again chose "View in browser" and it worked fine. No logon prompt.
This told me that the issue wasn't with the actual web project itself, rather my dev environment. I checked all my browser settings as suggested above, and they were correct. I then compared my project settings while I had the same project (same physical files) opened in both dev boxes. I noticed a difference...
Under the Start Option in the Property Pages, the Web Server was set to use the Default Web server in both cases. However, on the box that was asking for my creds, the NTLM Authentication checkbox was selected. I unselected this and it resolved the issue.
I'm not sure how this was possible since I was opening the same project files, and would assume the project settings would be exactly the same. And the fact it was working fine a week ago really perplexed me. I chalked it up to an issue with VS 2008 on the box with the issue. I hope this helps anyone else that may be running into this issue.