Windows Authentication Problem

This might be in the wrong spot sorry.

I have an asmx service running on IIS 7.  Windows authentication is turned on.  There is a windows application which consumes this service.  Basically we stripped out the direct database access out of the app and are now wanting to control it through the service.

 I am passing the windows credentials to the service with

servicename.UseDefaultCredentials = True

Okay the problem which is baffeling me and our network people.  There is an section of the company in another state but they are all on the same domain.  Everyone here can access the service and its functions fine.  It is the section out of state.  I know that sounds simple but here is more info.  I can actually hardcode my credentials into the app

New System.Net.NetworkCredential("username", "password", domain")

Push the app to this off site location and it works. 

I also built a website to just test these people.  The website lives on the same server and has window authentication required to access it.  These people can access this website which then accesses the webservice, but with the servers credentials.  I also display the users credentials on the screen to see what they have passed with

Their correct user and domain appear.  Any help would be awesome.  We have looked at the firewall, user groups etc...