Identity Impersonate=true does not work unless I specify UID and Password in Web.Config

Anonymous access is not enabled and windows integrated security is enabled. 

Here's the windows event log entry

--------- 

Event Type: Warning
Event Source: ASP.NET 2.0.50727.0
Event Category: Web Event
Event ID: 1309
Date:  10/19/2008
Time:  12:28:33 PM
User:  N/A
Computer: ITCHY
Description:
Event code: 3005
Event message: An unhandled exception has occurred.
Event time: 10/19/2008 12:28:33 PM
Event time (UTC): 10/19/2008 4:28:33 PM
Event ID: 30c2d05a751946349dc52f1a90fe7c11
Event sequence: 6
Event occurrence: 1
Event detail code: 0
 
Application information:
    Application domain: /LM/W3SVC/1/Root/RC-3-128689072864813307
    Trust level: Full
    Application Virtual Path: /RC
    Application Path: C:CPC APPWebsitesRC
    Machine name: ITCHY
 
Process information:
    Process ID: 3292
    Process name: w3wp.exe
    Account name: NT AUTHORITYNETWORK SERVICE
 
Exception information:
    Exception type: Exception
    Exception message: 24408 K2:NT AUTHORITYANONYMOUS LOGON from 192.168.108.150:24 does not have rights to Start Process WF_ClosingBoard2ClosingBoardApproval
 
Request information:
    Request URL: http://portal.cpc.local/RC/ClosingBoard2/ClosingBoardEventMaintenance.aspx?LID=88399&CloneOfTxnID=0&TxnType=1&EventType=1
    Request path: /RC/ClosingBoard2/ClosingBoardEventMaintenance.aspx
    User host address: 192.168.108.134
    User: CPCan
    Is authenticated: True
    Authentication Type: Negotiate
    Thread account name: NT AUTHORITYNETWORK SERVICE
 
Thread information:
    Thread ID: 1
    Thread account name: NT AUTHORITYNETWORK SERVICE
    Is impersonating: False
    Stack trace:    at SourceCode.Workflow.Client.InternalConnection.Call(ArchiveX ar, MessageType msgtype)
   at SourceCode.Workflow.Client.InternalConnection.CallFunction(ArchiveX ar)
   at SourceCode.Workflow.Client.Connection.CreateProcessInstance(String ProcName, Int32 Version, String Layer)
   at SourceCode.Workflow.Client.Connection.CreateProcessInstance(String ProcName)
   at CPCApp.ClosingBoard2.ClosingBoardEventMaintenance.KickOffWorkflow(String CBID, String LoanNum) in X:Door3TFSMaintenance1.13.1.2Tax AuditCPCAppCPCAppCPCAppClosingBoard2ClosingBoardEventMaintenance.aspx.cs:line 812
   at CPCApp.ClosingBoard2.ClosingBoardEventMaintenance.SaveTransaction() in X:Door3TFSMaintenance1.13.1.2Tax AuditCPCAppCPCAppCPCAppClosingBoard2ClosingBoardEventMaintenance.aspx.cs:line 795
   at CPCApp.ClosingBoard2.ClosingBoardEventMaintenance.btnSave_Click(Object sender, EventArgs e) in X:Door3TFSMaintenance1.13.1.2Tax AuditCPCAppCPCAppCPCAppClosingBoard2ClosingBoardEventMaintenance.aspx.cs:line 919
   at System.Web.UI.WebControls.Button.OnClick(EventArgs e)
   at System.Web.UI.WebControls.Button.RaisePostBackEvent(String eventArgument)
   at System.Web.UI.WebControls.Button.System.Web.UI.IPostBackEventHandler.RaisePostBackEvent(String eventArgument)
   at System.Web.UI.Page.RaisePostBackEvent(IPostBackEventHandler sourceControl, String eventArgument)
   at System.Web.UI.Page.RaisePostBackEvent(NameValueCollection postData)
   at System.Web.UI.Page.ProcessRequestMain(Boolean includeStagesBeforeAsyncPoint, Boolean includeStagesAfterAsyncPoint)
 
 
Custom event details:

For more information, see Help and Support Center at http://go.microsoft.com/fwlink/events.asp.

I'm not a Kerberos expert, I usually go to our helpdesk for those questions.  That being said, the error message you posted does not look to me like a typical Kerberos message.  Are there any errors in the Security section of the event log? 

I take it you have a custom web page that starts a K2 process.  What is your server toplogy?  Does this web page reside on the same server as K2 or K2 Workspace?  If K2 Workspace is on the same server, what happens when you look at a worklist?  Did you configure Kerberos?  The K2 Getting Started guide has a lot of good information about different deployment scenarios and when you need to use Kerberos.

 David