There was (and still is) misconception regarding that screen. That screen is for authenticating on the network. I believe you could also just close the dialog. It’s not for authenticating a local user account. Failing to authenticate you just couldn’t access network shares.
We very much for sure used this trick (and others) to go around network authentication back in college days: we had individual network accounts and only the admin had a local account. Poor fella ended giving up cleaning our mIRC and Starcraft installs.
I recall being able to just cancel that dialog back in the day. There was a group policy to require network authentication added at some point, but I don't know when.