It seems that a previous post I did (http://koobarspoint.blogspot.com/2008/11/sharepoint-infrastructure-update-broke.html) on Loopback Checks regarding search service accounts are being encountered by SharePoint Service Pack 2 when using .NET framework SP1. I have experienced this across a number of different environments where this combination has been used.
It's an easy enough fix (regedit) however this should be something that Microsoft perhaps fixed with SP2 as from what I have read this is a 'by design' 'feature' to the .NET framework as part of Service Pack 1.
Anyway, if you are experiencing HTTP 401.1 Unauthorized access directly on your server, or you are experiencing service account failure audits in your event log.
Try this on: