HTTP 401 Unauthorized Error - Unable to Browse FQDN Site from SharePoint Servers?

Windows Server 2008 and 2008 R2 have a security feature that prevents the WFE itself from browsing to FQDN server names (i.e., it hosts. This is only an issue from the web server and does not affect external clients.
HTTP 401 Unauthorized Error in SharePoint

Microsoft addressed two methods to solve the issue:

For a production server, you are advised to go with method 1, For a development or test environment, method 2 is an easier fix.

This error may occur when you provide wrong user name/password when trying to access SharePoint or wrong credentials in cache.

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