You are correct, the wpDirAuth plugin works fine in 2.7. What I found was a problem with how WordPres handles options since version 2.6.5. Our Active Directory uses a prebind username that has a \ in the name, and though it saves fine in the database, the wordpress function get_option
strips out the slash and therefore makes the username invalid.
This was very annoying and since I can't change the prebind username (it's a huge corporation), and I don't want to hack core code, I had to hack the wpDirAuth code to load the username from a file if it exists, or from the db if the file doesn't exist. Not a pretty solution, but it worked.