I seem to recall having this problem with Squid proxy authentication about a year ago. I don't remember how we fixed it (googling right now), but I am pretty sure this isn't a DAV specific problem, which might help you find the answer.
Adam Augustine
Sorry to reply to my own post, but I guess I was remembering wrong.
The bug is in XP's DAV support, has been confirmed by MS (http://support.microsoft.com/default.aspx?scid=kb;en-us;315621&Product=winxp), and there isn't a (real) workaround or patch.
You can try this:
http://www.luluware.com/info_mod_auth_msfix.html
Which should solve the problem for you.
Adam Augustine
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