Running A Distributed Query Against A Loopback Linked Server In SQL Server 2005 Is Not Supported

I receive the following error message when I run a distributed query against a loopback linked server in SQL Server 2005:
The Microsoft Distributed Transaction Coordinator (MS DTC) has cancelled the distributed transaction.

To resolve this problem, I was told that running a distributed query against a loopback linked server is not supported in SQL Server 2005. And I am suggested to use a remote server definition (sp_addserver) instead of a linked server definition to resolve this problem. (Although this is only a temporary resolution, which will deprecate in Katmai)

However, I run into another problem when I use the remote server definition. I receive the following error message:
Msg 18483, Level 14, State 1, Line 1
Could not connect to server 'ServerNameSQL2005' because '' is not defined as a remote login at the server. Verify that you have specified the correct login name.

Could anyone please help me out?
(I include the reproduce steps for the first error message, followed by my resolution that generates the second error message)
======
Reproduce steps for the first error message
======


On the ComputerAInstanceA instance, run the following statement to create a database and a table:
CREATE DATABASE DatabaseA
GO
USE DatabaseA
GO
CREATE TABLE TestTable(Col1 int, Col2 varchar(50))
GO
INSERT INTO TestTable VALUES (1, 'Hello World')
GO

On the ComputerBInstanceB instance, run the following statement to create a database and a table:
CREATE DATABASE DatabaseB
GO
USE DatabaseB
GO
CREATE TABLE TestTable (Col1 int, Col2 varchar(50))
GO

On the ComputerAInstanceA instance, create a linked server that links to the ComputerBInstanceB instance. Assume the name of the linked server is LNK_ServerB.

On the ComputerBInstanceB instance, create a linked server that links to the ComputerAInstanceA instance. Assume the name of the linked server is LNK_ServerA.

On the ComputerBInstanceB instance, run the following statement:
USE DatabaseB
GO
CREATE PROCEDURE InsertA AS
BEGIN
SELECT * from LNK_ServerA.DatabaseA.dbo.TestTable
END
GO

On the ComputerAInstanceA instance, run the following statement:
USE DatabaseA
GO
INSERT INTO TestTable
EXEC LNK_ServerB.DatabaseB.dbo.InsertA
GO
Then I receive the first error message.

=======
My resolution that generates the second error message
=======


On the ComputerBInstanceB instance, run the following statement:
sp_addserver 'ComputerAInstanceA'
GO
sp_serveroption 'ComputerAInstanceA', 'Data Access', 'TRUE'
GO
USE DatabaseB
GO
CREATE PROCEDURE InsertA AS
BEGIN
SELECT * FROM [ComputerAInstanceA].DatabaseA.dbo.TestTable
END
GO

On the ComputerAInstanceA instance, run the following statement:
USE DatabaseA
GO
INSERT INTO TestTable
EXECUTE [ComputerBInstanceB].[DatabaseB].[dbo].[InsertA]
GO
Then I receive the second error message.