VB.NET Login (SQL Server 2005) Error: Communication With The Underlying Transaction Manager Has Failed

Hi all,
I am trying to setup a VB.Net development environment on my desktop for one of the application which was already in the production for couple of years (some unknown contractor(s) developed and maintained it so far). The application works fine on the web.
Visual Studio 2005, .Net 2.0, SQL 2000, SQL Server 2005 were installed on my desktop. When I try to build the entire application/solution in the debug mode (i.e., with http://localhost/), build succeeds and I could get to the login.aspx. When I try to login, I am getting an error in the Visual Studio at the following code;connection = New SqlConnection(connectionString)
connection.Open()

 saying "Communication with the underlying transaction manager has failed", "System.Transactions.TransactionManagerCommunicationException was unhandled by user code". And the web browser displays the following error "Error HRESULT E_FAIL has been returned from a call to a COM component".
     When I try to connect the SQL Server 2005 with the same ConnectionString attributes by going to Tools>Connect to Database, it works fine. But, through application connection.Open() giving above errors.
     I have set the MSDTC properties (i.e., under Component Services>MyComputer Properties>Security Configuration) as below:-
Enabled Network DTC Access, Allow Remote Clients, Allow Remote Administration, Allow Inbound, Allow Outbound, No Authentication required - selected, Enabled XA Transactions...& DTC Logon Account is "NT AUTHORITYNetworkService".

Please help.
Thanks in advance,
Chandra