Printer Installation Failes While Trying from Internet explorer

Recently I installed a new print server with IIS in windows 2003 SP2 R2
machine. This server acts as a file server as well.

When I try to install the printer driver from "http://server_name/printers"
link in my XP machine, it stops at "verifying login name" and prompts for
user name and password, though i have not enabled any thing other than
anonymous access in the "IIS/ Printers" "directory security". Since the
client and server are in the same domain i tried supplying Domain username
and password still it does not work. Finally the error it throws is as given
below.

[Printer Installation Failed

The process cannot access the file because it is being used by another
process. ]

Also I like to know is there any way i can disable or make disapper
"printing and faxing" from the network share, as this server is a file server.

Any help is greatly appreciated.

thanks
santhana gopalan