More trials:

When we log on as another user to the domain it works. So when we run IE as another user fill in the credentials, it does not work, like the credentials are not being passed. However, when we log into that domain as that user then run IE as another user (same user) the report Builder launches successfully.

Another user with same OS, same group membership, etc. runs IE as another user and can launch RB with no issues.

Cached credentials? I'm kind of stuck, but it seems the common denominator is the clickonce process?

I'm guessing now.