User Authentication in Microsoft Document Connection
I had this same problem, and found the fix.

Our problem was that the company had migrated to a new domain, with all our usernames etc intact. So our old username (without a domain specified) was in the MDC Preferences, but it wouldn't let me change the username to domain\username. And the old username couldn't be entered either.

So the solution was to enter the new domain in the Preferences.

For future reference, here's the procedure:


Quit Microsoft Document Connection.app if it's running.
Go to a Finder window, pull down the Go menu, then "Go to folder" and paste in

~/Library/Application Support/Microsoft/Office/14.0/Document Connection/
Edit the file Document Connection.xml with your favorite reliable text editor.
Find the line containing authkey, there should be only one. The line should look like this:

&lt;attribute name="authkey" type="string"&gt;myusername&lt;/attribute&gt;
Add NEWDOMAIN\\ right before myusername (make sure to use TWO backslashes, otherwise it just escapes the first letter in your username). 

&lt;attribute name="authkey" type="string"&gt;NEWDOMAIN\\myusername&lt;/attribute&gt;
Save, close, and reopen Microsoft Document Connection. You should see your NEWDOMAIN\myusername (but still gray'ed out) when you add or select an existing Sharepoint site. Enter your new password and optionally save to keychain. 


Now you should be cookin' with gas!