I don't know much about WebDAV, but a friend of mine set up WebDAV in DW CS4 with these instructions:
I am having the same issue but with DW 5 and an IIS 7.5 server. I found the following KB article on adobe:
But that didn't help at all. In fact, i think it made it worse. Previously if i used the test connection button in the site manager it said i had bad user/pass. When i tried to use that fix, it just said it couldn't reach the server at all.
Any suggestions? I have admin access on both the remote server and the client pc (Win2k8 r2 and Win7 respectively)
I had this same problem and enabling basic authenitcation on iis7 is what solved it. As long as you are using SSL, it shouldn't be a security risk.