NTLM/Negotiate authentication is not working in some environments where a dialog with "unknown authentication scheme" is presented. This is apparently a JAAS/Kerberos login module rather than the http authentication dialog.
Verified on JDK 7u10 b18 by provided regression test (sun/net/www/messageheader/HTest.java).
Dev engineers have proposed & code reviewed a fix and preliminary webrev is available here. It's the fix for 8003948. The deploy file refers to JDK-7184444 fix.
A test jre.exe build is available from http://gbrgb01.uk.oracle.com/export/home/uploads/sean/ntlm/27NOV_2/
I'll update a jdk.exe to there also once available. (30 mins)
Potential blocker for FMW teams moving from jre 6 to 7u10