I just ran into and solved this problem myself...
I believe your problem is the Security setup (right click the directory and choose properties). There are two things you have to do in order to properly share in Windows 7. The first is to enable/create the "Everyone" share in the Sharing tab. Read only permissions should be sufficient to allow XMBC to connect. Next (and this is the part nobody seems to talk about or recommend) you need to add Everyone again to the Security tab. Basic access (read&execute, list folder contents, and read) should be enough to get the job done.
Depending on the directory being shared, the everyone user name may already exist in the Security tab, but sometimes it doesn't. This is the reason why this sharing problem seems sporadic. It's definitely not obvious since a username/password prompt implies the sharing isn't setup properly, but it's actually the file/directory security that is the problem.
I hope this helps some people figure out their problem.
I already show the Everyone share in my sharing tab. I also show the xbox account that I created. As of this moment my problem is that my Xbox is not seeing the workgroup.