CANNOT SET PARTNER 'NT AUTHORITYANONYMOUS LOGON.' Failed

i tried to set up mirroring having only principal and mirror. mirroring endpoints were easily created for both servers. when i try to add the partner name it responds with
Msg 1418, Level 16, State 1, Line 1The server network address "TCP://machine1.domain.com:5022" can not be reached or does not exist. Check the network address name and that the ports for the local and remote endpoints are operational.
On the log of machine1 i see,
Database Mirroring login attempt by user 'NT AUTHORITYANONYMOUS LOGON.' failed with error: 'Connection handshake failed. The login 'NT AUTHORITYANONYMOUS LOGON' does not have CONNECT permission on the endpoint. State 84.'.

i have similar problems as in

http://forums.microsoft.com/MSDN/ShowPost.aspx?PostID=1020144&SiteID=1

i am a sysadmin on both SQL Servers and have connect permission on both end points.
Both the endpoints are in started state and listening to all IP's
Both services are as 'Local System'
As per what was mentioned in the above post to add a 'domain/machine$' user did not help.
Tried using setspn.exe to add a new SPN MSSQLsvc/<HOST>:<MIRRORINGPORT> did not work. an ERROR comes 'not enough privileges'
setup shows the following SPN only on both
HOST/Machine name
HOST/Machine name.Domin.com
MSSQLSvc/Machine name.Domin.com:1433
SMTPSVC/Machine name
SMTPSVC/machine name.Domain.com

and on second machine
HOST/Machine name

HOST/Machine name.Domin.com

MSSQLSvc/Machine name.Domin.com:1433

any Clues?