First thing to do is make sure you have at least Rollup 9 installed for Exchange 2007
Then the following 2 websites provide solutions to the above.
I have had mixed comments some say the first work and some say the second work but the second one seems to be winning at the moment:
http://social.technet.microsoft.com/Forums/en/exchangesvrgeneral/thread/383d130e-869f-4fce-9502-8b340904b0baSee the section about enabling Kernel Authentication:
http://social.technet.microsoft.com/Forums/en-US/exchangesvradmin/thread/0c94187d-bc97-4fa5-9413-e8762a25a360