Known issue: Office 2007 on Windows Vista prompts for user credentials when opening documents in a SharePoint 2007 site

If you’ve been using Office 2007 on a Vista machine for as long as I have, you may have just gotten used to the extra credential prompts when you open Office documents from SharePoint 2007.  Well, Microsoft considers this a "known issue", but it’s not clear when it may be resolved for good, though it may be in Vista SP1.

In the meantime, there is a hotfix you can get, but you must ask Microsoft for it.  See the article entitled ‘You are prompted to enter your credentials when you access an FQDN site by using a Windows Vista-based client computer that has no proxy configured’ for the details.  The hotfix will only work for the SharePoint sites that you specify in the registry, so it is just a temporary workaround.