Aha! found the official word from MS:
They’ve tweaked the WebDAV redirector to disallow the use of HTTP Basic authentication by default. You can re-enable it, but doing so requires some minor registry changes.
This means that ANY DH client who is using WebDAV and upgrades to SP2 will find themselves locked out of their WebDAV directories until they make the reg change (or until DH switches to a stronger authentication mechanism than HTTP-Auth Basic, if that’s possible). Probably not a huge deal, but worth noting on the WebDAV page in the control panel at minimum…