Error : The user does not exist or is not unique.

This error occurs due to one of the policy(feature) enabled in Windows Server 2008 by default. It is a local policy in 2008 R2 that is required to be disabled (and machine restart is required after reset). 
This policy name is "Domain member: Digitally encrypt or sign secure channel data (always)". It is Enabled by default when you configure Windows Server 2008 R2. 

Steps to reach the policy and disable it:

Step 1 : Start -> Run -> type gpedit.msc and press enter.
Step 2 : Browse to Computer Configuration -> Windows Settings -> Security Settings -> Local Policies -> Security Options. 
Step 3 : Under Security Options on the right hand side, you will find this policy. Double click to open the policy, Click 'Disable' radio option. Save the changes.
Step 4 : Restart the machine. 

Even after configuring above one if you find the same error then follow the below steps:

Step 1 :  Start -> Run -> type inetmgr and press enter.
Step 2 :  Go to Application Pools 
Step 3 : Select your application on the right hand side. Right-click on it and select Advance Settings.
Step 4 : Under Process Model heading -> select identity field and click on the button of the field to change it.
Step 5 : Select Built-in Account -> select NetworkServices . Press OK.

Now, your issue will be solved.