Are you under the domain that you are trying to access? If not, that can be the reason to start with. Make sure that the website runs under the same domain account. Impersonation might help.
Also, see if the AD Username is properly specified: (DOMAIN\username)
In general, you get this error message when a logon attempt failed if the given password was bad, if the user account does not exist in that domain or if the password is expired, or if the password must be changed.
Refer this blog post for full details: MSDN Blog: Logon failure- unknown user name or bad password
Have a look at this article too: Active Directory Object Navigator