Hi Walter,
How do you have SSO configured in SDM? Are you doing it via IIS Pass-Thru authentication?
If you are using EEM for Authentication for SDM, then IIS Pass Thru isn't going to work. The prompt you are getting appears to be coming from IIS to ask for credentials, but IIS is only going to go to the local domain for which that server belongs to, and not the other domain where the users are. Generally if you want to use SSO with EEM, you would have to use something like SiteMinder.
Thanks,
Jon I.