In some environments, VirtualMachineViewer and VMConnect always prompt for credentials. In order to avoid the error below, follow the instructions in this blogpost:

http://blogs.msdn.com/ts/archive/2008/04/30/problems-using-default-credentials-with-vista-rdp-clients-with-single-sign-on-enabled.aspx

[Edit] Some customers have also found this post to be useful in resolving this issue: http://mindre.net/post/Your-credentials-did-not-work---Hyper-V-in-a-domain.aspx

The actual error is:

Your credentials did not work

Your system administrator does not allow the use of default credentials to log on to the remote computer <computer name> because its identity is not fully verified. Please enter new credentials. 

Entering new credentials works in all cases, but it is a hassle :)