NT Groups

I need a bit of information about using NT groups on SQL 7.0. We've been using SQL for some time, and now we're testing a new security model for some access to the data. I've just discovered, however, that if a domain user is a member of a local group of the domain, SQL will not permit the user access. However, if I create the local group on the server itself, then SQL will grant access. Am I missing something? When I read through anything on integrated security, it says that you can use either built in users/groups or domain users/groups without a problem. Does anyone have any insight into this?

Thanks for the help,
Chris