We faced this problem while installing CRM outlook client in one of our laptops.
I followed the instructions mentioned below which i found while searching for the same.
On the client computer open the control panel.
Open the User Accounts icon.
Click the Advanced tab.
Click Manage Passwords.
Click Add.
Enter the server name of the CRM server
Enter the username as domain\username
Enter the password.
Click OK, then click Close and then click OK.
On the client open IE, click the Tools menu and then click Internet Options.
Click the Security tab.
Click the Local Intranet icon.
Click the Sites button.
Click the Advanced button.
Enter the website for access Microsoft CRM and then click the Add button.
Click OK 3 times.
Close any open IE sessions.
The problem got solved for us !
Bye..
Nishant Rana's Weblog 
Thanks a lot
this has solved the problem for me also
I was breaking the head with the AD permission for the folder CRM
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Dear Nishant, I tried your solution for the “The request failed with HTTP status 401: Unauthorized. Mandatory updates for Microsoft Dynamics CRM could not be applied successfully” problem but it didn’t work. I am suffering couple of months back just to configure the CRM 4.0 for outlook on my laptop but still not working. Any alternatives?
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This was very helpful – thanks!
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Worked a treat! Thanks for sharing.
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It worked fine now :D:D:D
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hi Nishant,
the link is not opening, Do you have any remedy on this error. Actually after enableing SSL for CRM i am not able to configure my CRM Outlook client.
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Nishant & Everyone, Could you tell me which option did you choose while setting up the Manage Passwords On the client computer.?
As I access CRM via URL something like (http://company.dynamics.com:5555), the system allowed me chose the 2nd checkbox only while adding the Manage Passwords.
I also set up on IE for local intranet sites. But I still get the same error. Where do think I am going wrong? Any help from all would be apprecaited.
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Nishant & Everyone, Could you tell me which option did you choose while setting up the Manage Passwords On the client computer.?
As I access CRM via URL something like (http://company.dynamics.com:5555), the system allowed me chose the 2nd checkbox only while adding the Manage Passwords.
I also set up on IE for local intranet sites. But I still get the same error. Where do think I am going wrong? Any help from all would be apprecaited.
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Thanks man! you saved my day!
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I had the same issue with a customer that was running a proxy server. We had to configure IE to use a given proxy server an then add http://hosted-crm site to the exception lise.
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Sweeett
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SUCCESS!
I’ve spent 2 days trying to get a CRM Outlook client to connect and had no idea that this option was available. Worked beautifully in Windows 7 Pro.
We have our own CRM “workgroup” server running on a different domain. I needed to find a way to allow our CEO to access “our” CRM as well as the CRM on the other domain, via VPN. Nothing was working, I kept getting the “mandatory updates for microsoft dynamics crm could not be applied successfully” error, no matter what I tried.
Changing the credentials that my computer sends to the non-domain CRM server fixed the problem almost immediately. It’s a little different in Windows 7: Once you get into “user accounts” then you need to use the left side menu to “Manage your Credentials” to control what gets sent to the server. Beautiful!
Thank you for publishing this information, Nishant. This is MOST HELPFUL.
Regards,
Sean
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