Even if you configure your SharePoint site as Intranet in the Internet Explorer, you will be prompted for user credentials when you open an Office document with Office 2007.
This is true, if you haven’t configured a proxy in your browser, access your SharePoint site with a FQDN (fully qualified domain name) and you are using Windows Vista or Windows 7.
(Quote from the KB aticle below) In Windows Vista, Internet Explorer uses the Web Client service when you use Internet Explorer to access a WebDAV resource. The Web Client Service uses Windows HTTP Services (WinHTTP) to perform the network I/O to the remote host. WinHTTP sends user credentials only in response to requests that occur on a local intranet site. However, WinHTTP does not check the security zone settings in Internet Explorer to determine whether a Web site is in a zone that lets credentials be sent automatically…
If the URL contains periods, the server is assumed to be on the Internet <—this is the important point 🙂
Install Vista SP1 if you haven’t already. Otherwise you’ll need to install the hotfix from the KB article!
The article shows how to add an entry to the client registry, which will tell the WebClient Service to send credentials with the request.
Note: You have to restart the WebClient service after you modify the registry.