is it the standard Windows server challenge - the type you see when you want to logon to a network?
You'll need to explain your system in more detail. As I understand it you have a site that's entirely Flash, and you want to send customer's payments from it to your PayPal account, is that right? For some reason you've bought a special domain name and set up yet another site to do this - why have you done that?
It sounds to me as if the form is submitting itself to a different server directory - one on which you don't have write permissions, so the server is issuing what we used to call an NT challenge, the type you get when you logon to a network workgroup.
Perhaps if you could give me a step-by-step explanation I'll be able to sort this out for you.