This is something I was really frustrated by and wanted to share.
I've tried this on two Windows 2008 servers with the same behavior. WebDAV doesn't seem to recognize users in the Administrators group when using authoring rule that specifies user groups (the built in administrator account appears to work though). Haven't tested it, but maybe it doesn't work for any groups?
What I did:
1) Installed WebDAV 7.5.
2) Created authoring rule that allowed access to content and selected "Specified roles or user groups", added the administrators group.
3) Setup virtual directory in website (/webdav).
4) Attempted to connect from Win XP to webdav folder typing in "net use z: http://websitedomain.com/webdav /user:admin2 password" (admin2 is a user in the administrators group
5) Also couldn't connect using Windows Vista
Got this error Error:
System error 5 has occurred.
Access is denied.
If I change the authoring rule to "All users" or add admin2 into "Specified users" it works like a charm, so it doesn't seem to be an NTFS permissions or Authentication issue.
Is this a bug or am I doing something wrong?
I searched through the forums and didn't really find anything similar, possibly this user had the same problem:
http://forums.iis.net/p/1149803/1871443.aspx#1871443