Found out the problem thanks to a co-worker looking into it.
The problem is that within our environment, by default, Windows 7 required all SMB packets to be signed. Samba servers, however, do not. So there are two ways to fix this: turn off client signing in Win7 or add a flag to the smb.conf file in the global section as this: 'server signing = auto'. (we were using Samba 3.5.2).
For Windows 7, you can 'fix' this policy by making it more lenient -- going from requiring digital signatures to optionally using it if the server agrees.
Here's how you can use it:
The local windows security policy changes are as follows:
Browse to Computer Configuration->Windows Settings->Security Settings->Local Policies->Security Options
Look for "Microsoft network client: Digitally sign communications (always)" and change it to Disabled
You may also need to do the same for "Microsoft network client: Digitally sign communications (if server agrees)". In theory this should be negotiated during the negotiate/challenge phase of NTLM but it may fail; NTLM doesn't explicitly demand any real negotiation.