When you install SP2 on Windows XP it tightens security to the point that MSDTC doesn't work any more. I'm sure this is good for most users, but renders a developer workstation virtually useless... There are a series of steps you follow to reenable MSDTC but changing both its configuration and the Windows Firewall configuration. I think the same thing is true for Windows Server 2003 actually.

I've done this numerous times, but I keep losing the link to the KB article (873160). So I'm putting it here in my blog so I won't lose it again.