I recently upgraded to Eclipse 3.4.2 (Ganymede) and started having problems connecting to Trac. I didn't have any problems with Mylyn v2.3.2 in Eclipse v3.3, so I knew there were no configuration issues my installation.
The first thing I did was bust out an HTTP proxy tool so I could view the HTTP traffic being sent. Turns out that Mylyn was not sending the authentication header, so my servers was just spitting back a 401 authentication failed message.
I did a lot of searching and finally found the authentification fails with mod_auth_sspi or NTLM issue in the Mylyn bug tracker—which appears to be the exact issue I'm having, but alas upgrading to even the weekly (Mylyn v3.2) did not fix the problem.
Finally, I decided to just uninstall all the versions of Mylyn I had installed, but v3.0.5 that came with my Ganymede installation. To do that, you've first got to disable all the plug-ins and then you can uninstall.
Fortunately, rolling back to v3.0.5 has gotten me up and running again.
NOTE:Our Trac server is running Apache 2.4 with Trac 0.10.4. We also are using SSL with a custom cert and using Windows Authentication.