It's quite interesting.
I did verify the settings you suggest and frequently change between multiple frameworks so I can log into different instances on both our production and development environments.
The thing that gets me is that I can log in with a 7.5 SP1 client and it works. Upgrading the client to 7.7.1 breaks the authentication somehow. If I roll back the client it starts working again without changing the instance it is hitting at all.
I just opened a technical support case to get some assistance from LANDesk.