Failed: The request failed with HTTP status 401: Unauthorized.

I have a situation where my app is getting 401.
Here is the scenario:
3 machines are used
1: WebService is running on Box A (Webservice Host with Windows Authentication enabled, Anonymous disabled)
2: Web Site is running on Box B (Website Host with Windows Authentication enabled, Anonymous disabled)
3: Users Local Box C (IE Browser use)
Webservice call form Website uses following code:
myService.Credentials = System.Net.CredentialCache.DefaultCredentials
Execution Plan:
1: User access Website via Box B and calls on Webservice resulting in success.
2: User access Website via Box C and calls on Webservice resulting in failure.
Now I am confuse on why is the Windows Credentials lost when doing a double hop to accomplish the same (process 2)
Can someone explain to me the situation and work around to ...