If you open an office document from a sharepoint 3.0 / moss 2007 site from the extranet, you will be asked for your credentials several times. Here is a summary of possible solutions and workarounds I found about this issue:

KB 941853 addresses the issue where "Automatically detect settings" was required to be enabled in order for the Automatic configuration script to be processed for WebDAV communication. With 941853 installed, the "Automatically detect settings" can be either enabled or not.

KB 941890 includes the fix from 941853 and in addition will assume (in an environment where no proxy server is configured in the IE settings) that a site that has no dots in the name will be treated as an intranet site (e.g. http://companyweb is intranet while http://www.mycompany.com is Internet) and credentials will be passed automatically for WebDAV communication.

- For IE7 the equivalent is adding the site to the Intranet Security Zone.

- Only NTLM can automatically send credentials

- Convert all Office documents to Adobe PDF. For documents that need to be available in the native Office format (.doc, .xls, .ppt, .vsd, etc.), compress them as .zip files. Use the .pdf and .zip files in the document libraries instead of native Office files.

- You can completely get around this by publishing your Sharepoint from behind an ISA 2006 server when in Form Based Authentication.

When you publish using Form Based Auth and select "Private Machine" at login, you will be given a cookie that both IE and Office will read that will authenticate you to the AD/Sharepoint for each request.

- Open Documents in Read-Only-Mode

RESOLUTION
To resolve this issue, do the following:
1. In Windows Explorer, find the Htmltransinfo.xml file. This file is located in the following folder:
<driveletter>:\Program Files\Common Files\Microsoft Shared\Web Server Extensions\60\Template\Xml
2. Right-click Htmltransinfo.xml, and then click Edit.
3. Edit the file to set ProgId to empty (for example, ProgId = "").

The following is an example of how the Htmltransinfo.xml file looks before you make the edit:
<HtmlTrInfo>
<Mapping Extension="xls" AcceptHeader="application/vnd.ms-excel" HandlerUrl="HtmlTranslate.aspx" ProgId="SharePoint.OpenDocuments.2"/>
<Mapping Extension="doc" AcceptHeader="application/msword" HandlerUrl="HtmlTranslate.aspx" ProgId="SharePoint.OpenDocuments.2"/>
<Mapping Extension="ppt" AcceptHeader="application/vnd.ms-powerpoint" HandlerUrl="HtmlTranslate.aspx" ProgId="SharePoint.OpenDocuments.2"/>
<Mapping Extension="pps" AcceptHeader="application/vnd.ms-powerpoint" HandlerUrl="HtmlTranslate.aspx" ProgId=""/>
<Mapping Extension="one" AcceptHeader="" HandlerUrl="" ProgId="SharePoint.OpenDocuments.2"/>
</HtmlTrInfo>
The following is an example of how the Htmltransinfo.xml file looks after you make the edit to set ProgId to empty:

<HtmlTrInfo>
<Mapping Extension="xls" AcceptHeader="application/vnd.ms-excel" HandlerUrl="HtmlTranslate.aspx" ProgId=""/>
<Mapping Extension="doc" AcceptHeader="application/msword" HandlerUrl="HtmlTranslate.aspx" ProgId=""/>
<Mapping Extension="ppt" AcceptHeader="application/vnd.ms-powerpoint" HandlerUrl="HtmlTranslate.aspx" ProgId=""/>
<Mapping Extension="pps" AcceptHeader="application/vnd.ms-powerpoint" HandlerUrl="HtmlTranslate.aspx" ProgId=""/>
<Mapping Extension="one" AcceptHeader="" HandlerUrl="" ProgId=""/>
</HtmlTrInfo>
After you edit the Htmltransinfo.xml file, you can open Office documents in read-only mode on a Windows
SharePoint Services Web site that has its directory security set to anonymous access. You are not prompted
for authentication.

Be carefull when installing it on a productive server, use a test environment first. Seems like there are a lot of problems upgrading systems. Also be aware that WSS and MOSS service packs cannot be uninstalled!

Downloads:
WSS 3.0 SP1
MOSS 2007 SP1