PEAP/MSCHAPv2 failing with Windows 7

[Garber, Neal]

> In the PEAP properties, EAP-MSCHAP v2, if you DISABLE
> "automatically use my windows logon name and password" and
> instead enter the credentials manually it works.

Look at:

http://freeradius.1045715.n5.nabble.com/MSCHAP-Authentication-Issue-td2785146.html 

to see if this is your problem (look at the table in the post). If so and you're running a version < 2.1.10, upgrade as this problem is fixed in 2.1.10..