Some recent updates from Microsoft are causing havoc with WSS or Sharepoint because it enables loop back checking which causes weird errors like this.
Try the following: Disable the authentication loopback check
Re-enable the behavior that exists in Windows Server 2003 by setting the DisableLoopbackCheck registry entry in the HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Control\Lsa registry subkey to 1. To set the DisableLoopbackCheck registry entry to 1, follow these steps on the client computer:
Click Start, click Run, type regedit, and then click OK.
Locate and then click the following registry subkey: HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Control\Lsa
Right-click Lsa, point to New, and then click DWORD Value.
Type DisableLoopbackCheck, and then press ENTER.
Right-click DisableLoopbackCheck, and then click Modify.
In the Value data box, type 1, and then click OK.
Exit Registry Editor.
Restart the computer.