Hi,

The error happens because in Windows operating system such as Windows XP, Windows Vista, Windows 7, Windows Server 2003 and Windows Server 2008 (or their R2 versions) does not allow local user to log on remotely via network logon if the user account does not have a password set. 

Thus, in order to resolve and fix the “Logon Failure: User Account Restriction” issue, user will need to configure and set the remote system to explicitly allow local user account with blank or no password to be used for network logon. To change the policy, perform the following steps on the remote computer (which is connected to):

1.Open Local Group Policy Editor by typing gpedit.msc in Start Search box and hit Enter.
2.Navigate to Computer Configuration -> Windows Settings -> Security Settings -> Local Policies -> Security Options branch.
3.Locate and double click on Accounts: Limit local account use of blank passwords to console logon only option.
4.Select the radio button for Disabled to allow user account with blank (or no password) for remote login. 


5.Click OK.
For user on system without Local Group Policy Editor, follow the Registry Editor alternative:

1.Run Registry Editor (RegEdit).
2.Navigate to the following registry key: 
HKEY_LOCAL_MACHINE\System\CurrentControlSet\Contro l\Lsa\

3.Double click on LimitBlankPasswordUse registry value name, and set its value
data from 1 to 0.
4.Close Registry Editor.

Hi,
Are you using Windows XP Home Edition or XP Pro?