Yes. You have changed the "Authenticate" action to a "Block" action in the "Authenticate With User Database" rule. This means when the browser comes with no credentials at all for the first time MWG will not send an HTTP/407 status code to trigger authentication at the browser, but will throw a block action right away. The browser will never have a chance to authenticate.
Please try using the default rule set that ships with the product. If the setup to the Active Directory works fine (which seems to be the case) authentication will work out of the box.