Can not do radius authentication via WLC 4400... Please help!

Hey,
I am configuring an old WLC4400 with V4.2.130.0. I added a new sub-interface for VLAN 50 with proper IP for the subnet and then add the Radius server(Windows server 2008 with NPS) onto WLC4400. I then created new WLAN with WPA+WPA2 Encryption and 802.1x key management and selected the Radius server under AAA for authentication.
Configured the test XP with WPA-Enterprise and PEAP as EAP method. I purposely configured computer to prompt for username and password.
When I try to connect, I did get prompt for username and password. However after that nothing happens. It seems like laptop just keep trying to authenticate.
I checked windows event log and do not see anything under NPS. I know this windows server NPS setup works as it is also the authentication server for our remotevpn.
So my question: is there any special option I need to turn on for WLC in order for Radius authentication work? Or is there any known bug with V4.2.130 (I searched bug toolkit but did not see anything).
Any suggestion is appeciated!
Thanks,
/S

Configuration
Open Network Connections by clicking on the Windows Start button, right-clicking on My Network Places, Properties, or Start > Control Panel then double-click on Network Connections.
Right-click on your wireless network adaptor and choose Properties.
Note: If your wireless connection is part of a Network Bridge you must remove it from the Bridge before continuing.
Click on the Wireless Networks tab at the top of this dialog box.
In the Preferred Networks section click Add...
Enter "Imperial-WPA" as the Network Name (ssid). Note: this is case-sensitive.
Either select WPA2 for Network Authentication: and AES for Data Encryption:
or select WPA for Network Authentication: and TKIP for Data Encryption:
(WPA2 + AES is more secure)
Check that the This is a computer-to-computer (adhoc) network check-box is not ticked.
Then click on the Authentication tab at the top of this dialog-box.
For EAP type: select Protected EAP (PEAP).
Check that the Authenticate as computer... and Authenticate as guest... check boxes are not checked.
Then click on the Properties button.
Then click on Configure...
Un-tick the Automatically use my Windows logon name... check box.
Click OK, then click OK on the previous two dialog boxes to exit.
First connection
Once you are within range of the wireless network a balloon should appear on the task bar prompting you for credentials.
Click on this balloon and you will be prompted for your logon credentials
Enter your college username, password and "IC" for the Logon domain. Then click on OK.
You should also be prompted to accept the server certificate.
Note: If you change your college password at any time you will be prompted to enter your new password when you next connect to the network.
Thanks,
Scott
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