Browse a SharePoint Web Application which uses a fully qualified domain name from a WFE in the farm you will get a 401.1. This error code means there is a problem with the user credentials but nothing to do with invalid credentials.
Windows Server 2003 SP1 introduced a loopback security check. By default this feature enabled in Windows Server 2008. The feature prevents access to a web application using a fully qualified domain name (FQDN) if an attempt to access it takes place from a machine that hosts that application and shows a 401.1 Access Denied from the web server and a logon failure in the event log.
How to Solve this
You need to create a DWORD registry key called DisableLoopbackCheck and set it to 1.
1. Start -> Run, type regedit
2. Go to following registry key
3. Add a new DWORD Value in LSA key.
4. Type DisableLoopbackCheck, and then press ENTER.
5. Modify DisableLoopbackCheck and set Value to 1.
6. Exit Registry Editor
7. Restart your computer.
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