I had this same problem at work with our windows 7 workstations. The problem is that Microsoft no longer says NTLM is secure and therefore disables ot by default. If you have an active directory domian you can push the setting to turn NTLM back on with group policy. If not you can do it on a machine by machine basis with local policy settings. For local machine policy type mmc in the search for progams and files box and then run it. Go to file, Add/Remove Snap-in and add the Group Policy Object. Then drill down to Local Computer Policy -> Computer Configuration -> Windows Settings -> Security Settings -> Local Policies -> Security Options. Then in the list of Policy Objects in the right pane find Network security: LAN Manager authentication level. It will be Not Defined by default. I changed our policy to Send LM & NTLM - use NTLMvs session security if negotiated. After appling this change you may have to reboot the computer for the changes to take affect. This fixed the problem for my Windows servers and workstations as I am doing it through Group Policy at the domain level.
Squid NTLM Win2008R2
Linear Mode
