The integration of IIS and ASP.NET authentication stages in Integrated mode applications brings a lot of benefits, including being able to use ASP.NET authentication features like Forms Authentication for the entire web site. However, it also prevents two-level authentication schemes that relied on the two separate authentication stages between IIS and ASP.NET from working.
I mentioned this in the list of ASP.NET breaking changes in December. Since then, I've gotten many requests for re-enabling these scenarios in Integrated mode, so I put together a workaround for doing this in Integrated mode.
To learn more and download the bits / source code of the workaround, see http://mvolo.com/blogs/serverside/archive/2008/02/11/IIS-7.0-Two_2D00_Level-Authentication-with-Forms-Authentication-and-Windows-Authentication.aspx.