Vandy, Thank you for your reply. After further research your comment of adding integrated authentication on the /Exchange legacy directory on the CAS seems to be in conflict with following msexchangeteam blog that states legacy directories on the CAS can only support forms and basic security. Could you please clarify further?
REF:
Outlook Web Access and Exchange 2007, 2003 and 2000 coexistence
Another authentication issue to be aware of is that legacy virtual directories on a CAS (i.e., the ones that use exprox) really are the same as the virtual directories on an E2003 FE server. This means that you can only use forms-based authentication (FBA) or basic authentication.