authentication mode windows : web vs web service application

I have created web service application in .net 2.0 with IIS set to
disable anonymous access and use windows integrated authentication. My
web.config is set as below






When I try to access this web service from my domain account, I can
successfully call web methods. Whereas through my local account, I get
an error saying access denied for user (null).

I thought if I create a web application with same settings I will get
same behavior. But I was wrong when I use my local account I can still
access webforms and LOGON_USER server variable is set to my local
machine name\username.

I am really confused, why does this setting work for web services but
not for web applications. Any ideas would be appreciated.
Thank you.