Windows Dialog PopUp - Why So?

For the company I work for, I create many web applications (.aspx) that are accessible via our intranet. Sometimes (once a week or so) I have some users tell me that when they are trying to access one of these sites, a windows dialog pops up asking them for their user name and password.

I've noticed there can be two ways of solving this:
1. By closing the browser and reopening it, OR
2. By entering user name = DOMIAIN\UserID and password
and that should work.

I believe this dialog is a nuisance and I would like to find out why this is happening. Sometimes the users are within the same building, and sometimes the users are in far away cities.

How can I alleviate this? Has anyone else experienced this effect? Am I doing something wrong in my code?Do you need the users to be authenticated for your app?
If not, you can simply configure IIS to allow "Anonymous Access".
If yes, users can configure the browser to automatically pass the current credentials to the server without a dialog:
Tools | Internet Options ... | Security | Custom Level | User authentication | Logon ...