This answer varies depending on if you doing linux or windows.
The key is NTLM. If the client is coming from the local net, and part of a domain,
you can use NTLM based login, this is also know as Integrated Windows Authentication.

If you using NTLM to automatically logon, there is a nice plugin you can using with
mongrel on windows.

See my post
http://mentalpagingspace.blogspot.com/2008/12/rails-to-windows-integrati...

This is idea for light-duty applications hosted on a windows machine or vm. I use this when my
application needs to make WMI or other windows specific calls. Your application login
is automatic if the user is coming from the local network and part of a domain. The mongrel
can run as a service that auto starts at boot time.

In Linux you can also do the same trick, there is a apache plugin to allow you to use NTLM.
Since I've seen apache articles on using NTLM in a domain, then I'll leave those to the reader.

And as a note, I prefer LINUX for applications that do not need significant usage of Window API.
Its faster and more stable than running it on XP. My fav at the moment is to use Passenger to manage
linux hosting of Rails

On the other hand, If you have a app a handful of people are going to use sporadically, which
is common in the enterprise. A XP based Implementation has been problem free for me.

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