I'm trying to secure Asp.Net MVC5 application to use Windows authentication.
I have mostly followed this article: http://msdn.microsoft.com/en-us/library/gg703322%28v=vs.98%29.aspx
And when I go to pages, I'm presented with login/username textboxes:

I type correct username/password and I'm asked for the same details again. And again and again. I've tried to do add machine name before the login ( local machine does not have a domain), but no luck.
In web.config I have:
<authentication mode="Windows" />
In IIS 7.5 I have the following for the authentication:

Controller action I request looks like this:
public partial class HomeController : BaseController
{
private readonly IMediator mediator;
public HomeController(IMediator mediator)
{
this.mediator = mediator;
}
public virtual ActionResult Index()
{
var model = mediator.Request(new MenuModelQuery());
return View(model);
}
If I turn off any authentication (enable anonymous) - everything works fine. I have tried playing with different user for Application Pool for the web-site - no change. I have added [AllowAnonymous] attribute to the controller action - no change. I have tried [Authorize(User="trailmax")] - no change in the behaviour.
Fiddler shows that authenticate header is passed every time when I put username/password in:
Request:
GET http://reporting.dev/ HTTP/1.1
Host: reporting.dev
Connection: keep-alive
Cache-Control: max-age=0
Authorization: Negotiate TlRMTVNTUAABblahblahblahblah=
Accept: text/html,application/xhtml+xml,application/xml;q=0.9,image/webp,*/*;q=0.8
Response:
HTTP/1.1 401 Unauthorized
Content-Type: text/html; charset=us-ascii
Server: Microsoft-HTTPAPI/2.0
WWW-Authenticate: Negotiate TlRMTVNTUAACAAA_some_long_stringkLP9zgEAAAAA
Date: Fri, 20 Dec 2013 18:44:50 GMT
Content-Length: 341
Proxy-Support: Session-Based-Authentication
I'm out of ideas. Can you suggest anything?