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From what I undestand of it am I using notes Single Sign on. This was enabled in the client install of Notes 8.5.1 and is controlled by the Windows Service "Lotus Notes Single Logon".
Every month when as user changes their AD password they are prompted at first logon of Notes advising their password does not match that of the Windows account, and they have to manually sync it every month.
If you reset the users account in AD it does not reset the notes ID file, this is why we are trying to use the vault.
If you reset the users AD account Notes will still prompt them for a password as their passwords no longer match, at this point Notes is still looking at their old ID file locally and advises that you are entering the incorrect password. As soon as I stop the windows service "Lotus Notes Single Logon" and launch Notes again it prompts for a password but accepts the new password set from the vault.
Hope this clears it up.
Feedback response number WEBB87AVEZ created by ~Wei Cisponechekoni on 07/12/2010