If you get this error, it usually means that Microsoft Internet Information Services (IIS) returned the following status:
HTTP_STATUS_DENIED 401
Make sure the directories accessed by IIS have proper permissions. RDS can communicate with an IIS Web server running in any one of the three Password Authentication modes: Anonymous, Basic, or NT Challenge/Response (called Integrated Windows authentication in Windows 2000). Also, the Web server must have permissions to the data source computer if it is a Windows NT/Windows 2000 computer.