IIS ASP.Net windows authentication doesn't work

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http://serverfault.com – I have an intranet web application. Even though I've set "Windows Authentication = Enabled" (and all other Authentications are disabled), when the application tries to access resources, it is treated as though it is run by the same user that runs the Application Pool's process. Is there a problem here, or do I not understand correctly how Windows Authentication works? If I did get it wrong, is there another way to make the application run as the client user? (HowTos)