The request failed with HTTP status 401: Unauthorized

Scenario:

Machine A: ASP.NET Web UI
IIS 6.0
Windows Server 2003
Impersonation Account: domain\Acct1


Machine B: ASP.NET Web Service
IIS 6.0
Windsow Server 2003
Impersonation Account: domain\Acct2



when Web UI calls Web Service, it fails saying "System.Web.Exception The
request failed with HTTP status 401: Unauthorized."

When I look at the IIS log for Web Service I see,

WebService.asmx -> HTTP Code, 401 2
WebService.asmx -> HTTP Code, 401 3
WebService.asmx -> HTTP Code, 401 1


domain\Acct1 has full control over web service web site and all the files
underneath it.



I used filemon on WebService.asmx and found that IIS is even not tring to
read it.


Then I deployed the same Web Service on Machine C, with similar
configuration. Web UI works fine.

Could someone please help me to find out what could be wrong?

Any pointer?

Thanks in advace
Sachin