If you get this error, it usually means that Microsoft® Internet Information Server (IIS) returned the following status:
HTTP_STATUS_DENIED 401
Make sure the directories accessed by IIS have proper permissions. RDS 1.5 can communicate with an IIS Web server running in any one of the three Password Authentication modes: Anonymous, Basic, or NT Challenge/Response. Unlike previous versions, the Allow Anonymous setting is no longer required. Also, the Web server must have permissions to the data source computer if it is a Windows NT® computer.