i just received that same exact error message with a windows 98 machine i was fixing for a friend of mine. the cause was that they had zonealarm firewall and security on their machine.
your problem is most likely from winXP firewall being enabled. to disable winXP firewall go to your control panel and click the network connections.
once there right click on your "local area connection" or whichever one you use to connect to your network. when you right click it you will get a pop up menu, choose properties. go to the advanced tab and uncheck the box to enable winXP firewall.
also if you have any other firewalls like mcaffee or noton or anything in the system tray located at the very bottom right corner of your desktop, you must either enable them to share files and folders on your network or use IPX/ SPX to share files and folders.