I did some further digging on this.
I ran Packet Captures on my Win 7 Virtual machine before and after installing Windows Live.
Of course, everything ran fine until the Live Sign-in Assistant was installed.
Now I know a little more about what the issue is:
When it's installed, the WD DOES Log In successfully.
However, when the WD asks the server to "Enumerate" the shares (basically, list all the shares that the account has access to, the server immediately responds with PERMISSION DENIED.
The Windows Box should DENY LOGIN if it's in fact, not allowed. But it's not. It's allowing the log-in, but denying the request to list shares.
That's AFTER Sign-in assistant is installed.
BEFORE it's installed, it does, of course, list the valid shares.
So, it comes down to two scenarios:
Either the WDTV is issuing an INCORRECT Enumeration request (which is processed ANYWAY if SIA isn't installed), OR SIA introduces a bug.
We'll have to wait and see! The issue has been around for almost a year.