I faced this issue after installing VSeWSS (Visual Studio Extensions for Windows SharePoint Services) V1.3. O/S was Windows Server 2003 SP2 and I was trying to package my solution for SharePoint in Visual Studio 2008 when it kept failing by giving following errors:
“The HTTP request is unauthorized with client authentication scheme 'Negotiate'. The authentication header received from the server was 'Negotiate,NTLM'.""
and (at times when I was trying different things) the following error:
“The HTTP request is unauthorized with client authentication scheme 'Negotiate'. The authentication header received from the server was 'Negotiate,NTLM'.”
Do the following to resolve, go to (try after each step in order):
0. If you are using domain account, make sure you are connected to that domain otherwise user (against which the VSeWSS site application pool is running) will not be able to authenticate.
1. Follow this article and make sure IIS enables NTAuthenticationProviders. http://support.microsoft.com/kb/215383
2. Start Menu > Administrative Tools > Local Security Policy > (Expand) Local Policies > Security Options > (Look for) Network Security: LAN Manager Authentication Level > (set it to) Send LM & NTLM – use NTLMv2 Session security if negotiated. > Hit OK and restart the system.
If above step doesn’t resolve the problem, make sure the following are true:
1. Enable the Anonymous access to the VSeWSS site (which the VSeWSS setup creates during installation).
2. Make sure you are able to access the VseWSS site.
3. Make sure correct address is there in the registry.
Start > Run > regedit (hit enter)
Then select following key in registry:
HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Shared Tools\Web Server Extensions\12.0
Look for “VSeWSSServiceURL” key and make sure it is pointing to an accessible address of your service site.
4. You may have to restart IIS, Visual Studio or computer depending upon what you change.
Best of luck