I changed to Lan Manager Authentication Level to Send LM & NTLM in windows 7 and now able to get on the domain network and can see the XP machine. When trying to access it, get network not found and error 0X80070035. I am able to ping it with 4 replies.
Updated the sharing folder and lost connection to XP PC. Still able to access the domain. Both PCs windows 7 and XP are logged onto the domain.