On the host computer (the one you are trying to connect to), you need to have a password. Go to the control panel and click on User Accounts.
Go to the Advanced Tab and then click on Advanced in User Management. Click on Users and then Right-click on the username that you use to log into the computer. Choose Set Password.
You have to have a password to connect remotely.
Click ok all the way through to get back to the Control Panel.
Click on System and then the Remote tab. Put a check mark in Allow users to connect remotely.
Also,
Click on the button entitled: Select Remote Users...
Add whatever username you had previously add a password to.
Click on Check names.
You probably want to remote after all this.
Here is a website that will help you out:
http://www.microsoft.com/windowsxp/using/networking/expert/northrup_03may16.mspx