I got the client on Vista working after googling. I had to disable UAC (User Access Control) on vista which was preventing other PCs to control the vista.

New problem I have now is running the server on Vista. When I connect from a Win XP client, the server just connects, then few seconds later disconnects and just creates that loop which the server has a hour glass the whole time and you have to ctrlaltdel close it. Solutions for that?