First of all you need to enable Basic Authentication. You can find this setting in the Authentication feature for the site in IIS Manager:
Double click on the icon then right click on Basic Authentication and select Enable:
You can also configure this directly in your
web.config file (your application doesn't even have to be an ASP.NET application):
<?xml version="1.0" encoding="UTF-8"?>
<basicAuthentication enabled="true" />
This will only work in the
web.config provided that this feature has been delegated as Read/Write.
Out of the box you would need to create a separate Windows 2008 account for each login.
If you wanted to use a custom store (SQL Server, Membership Service) then you'd need to write your own Basic Authentication module:
Developing a Module Using .NET