Unable to join domain

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.
 
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At a glance

Windows 7 Professional X64I74 GBNvidia GeForce 220
OS
Windows 7 Professional X64
CPU
I7
Motherboard
Gigabyte
Memory
4 GB
Graphics Card(s)
Nvidia GeForce 220
Monitor(s) Displays
Dell
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