When we are using SQL server 2000 on Windows server 2003 machine and application on Windows XP/Professional and changed machine location,the same application which was running previously,started giving the above error.After lots of search, we found that the problem resulted due to change of IP address/ Port or domain of client machine on which application is hosted. What was happening - MSDTC on client system was able to communicate with MSDTC on database server but vice versa was not possible as the DNS setting is yet not reflected in DB server. This will take some time to reflect,therefore Windows server 2003’s MSDTC check for the previous IP/domain and fails to respond resulting in above error. The solution is - Either restore the IP address to original OR wait for around 24 hrs ..it will solve the problem.

Here is KB:MSDTC fails to mutually authenticate when computers do not run in the same domain explaining the Mutual authentication failure when running application and Database server on different domains.

Also if you are running your application on Windows XP with SP2 applied, check for the proper configuration for MSDTC. Here is a documentation at Microsoft Technet: Changes to Functionality in Microsoft Windows XP Service Pack 2 Any comments welcome !!

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