Did you go through the user's guide? http://www.dotnetnuke.com/Community/ExtensionsForge/ProviderAuthentication/tabid/840/Default.aspx

What you're wanting to do you don't need the AD provider as it's meant as a way for AD users to be able to login on a Forms authentication site. I'm not 100% sure on the setup as I've never done it but if you look in your web.config you'll see a section for Windows Authentication that's commented out. If you comment out the Forms Authentication and uncomment the Windows authentication it should work. At this point it's really outside of the DNN realm and into the IIS realm for setting up a site for Windows Authentication. You may have to give your users read rights on the directory (and sub-directories). That's my guess on why your admin users have no problems but your normal users go into a redirect loop.

So in the end, what I'd do to set it up the way you're looking to is to uninstall the AD provider (since it's not going to be used) and comment out the Forms Authentication section in your web.config and uncomment the Windows Authentication section. If it still doesn't work for normal users then I'd look at giving Read permissions for your users. If that doesn't work then I'd start looking on Google or http://iis.net on how to setup a .NET website for Windows Authentication.