You need to share the details of what you have configured in order for forum users to be able to help you.
I assume that you have enabled IIS basic authentication on the site. Correct?
What NTFS permissions did you apply to the folder? IE, how do you identify authorized users?
Are you using Active Directory or local accounts?
Are the users including the AD domain in the username field or did you set the Default Domain in the IIS authentication settings?
Did you check the Security eventlog to see what logon failure occurs?
Have you reviewed what you configured with your software vendor? Typically, web based software has some user authentication built into it and does not rely on basic authentication.
If you are using AD accounts, have you tried using Integrated Authentication?