I figured out the problem this morning. Thank you all very much for your assistance. Basically what was happening is his machine had a cached credential for that server that it was authenticating with in leiu of his own credentials. Here is a brief description of what I did to resolve it:
1) Click Start, Settings, Control Panel, User Accounts.
2) Click the Advanced tab.
3) Click Manage Passwords.
4) Selected the cached entry for the Intranet site and removed it.
His machine is Windows XP SP2 by the way.
Thanks again for all your help guys!