This is expected - the office  app needs to authenticate since it is
communicating directly with SharePoint. There's no good/secure way to pass
Basic auth credentials  between applications, so the 2nd prompt  is necessary.

So I guess my next question is, does MS have a solution for this or is
this something we all have to deal with?

There is no solution to this at this time  - this will happen whenever using
Basic authentication. This does not happen with Windows Integrated auth, but
that is not available in most (any?) extranet deployments.

But I am using Integrated Authentication for my portal. I'm not using Basic.

If you are using integrated auth then you should not be receiving any
authentication prompts  at all - either for the portal  or Office. In this case
your Windows login credentials  are passed through seamlessly for both.

On another note, I was wondering if anybody has seen this problem. When I use
Basic Authentication, my portal  will not index therefore, the users are not able
to search for documents. When I use Integrated Authentication, my portal will
index and the users are able to search for documents. I have not been able to
figure this out. So that is another reason why I have my portal set to use
Integrated Authentication.

What if in XP you stored you logon and password  in the users control
panel? I believe this works.

I tried that and still got prompted.

To enlighten the subject:



1. When using basic auth user will be prompted  to enter credentials
when

a. First time  he/she enter the web page
b. First time an office  application is opened (i.e. by
clicking Edit in for instance). If you leave the Office application
opened then you will not be prompted for credentials



2. When using integrated auth user will be prompted to enter
credentials when

a. Client credentials  does not map to a valid Sharepoint
user

i.
In that case, rules on 1 applies as well

b. A firewall is blocking the integrated challenge response
and preventing successful authentication (Then you need to switch to
Basic)
c. The SharePoint site is recognized as not being in the
"Intranet Zone", this force authentication. To avoid this, add the
SharePoint in the Local Intranet Zone manually.



Although it is true that username/password can be cached with Windows
XP, I believe this may not work with Office depending on the version
(But I usually get inconsistent results with password  caching)