Several modules in IIS 7 perform security related tasks in the request processing pipeline. In addition, for each authentication scheme, there are separate modules that allow you to select modules for the authentication types that you want on your server.
The one you're looking for is the WindowsAuthenticationModule, which performs NTLM Integrated Authentication. It is located in the Inetsrv \ Authsspi.dll folder.
The following figure shows the IIS7 HTTP request pipelining mechanism.

For full in-depth development, including the above material, visit: http://learn.iis.net/page.aspx/101/introduction-to-iis-7-architecture/
This should answer all your questions :-)
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