An Issue with Folder Level Security and Anonymous access.
Found this one by accident and according to Microsoft it is working by design, although no one has explained why it was designed that way. In any case the issue involves folder level security and anonymous access. Seems that if you break inheritance at a folder level you will not be able to allow anonymous access from that point down.
We have tried many different ways to get around this finally deciding on a event trap to provide a way to get this to work the way we want it.