First off, to be completely clear, NetBios over TCP/IP is activated... How do I check that 137-139 (UDP and TCP) is allowed??

Just to make sure: NetBIOS over TCP/IP is activated and 137-139 (UDP and TCP, both
for simplicity) is allowed (on the local subnet)?
I cannot ping either machine from either machine... erm

The packets I am refering to is seen when you open the network properties and view the connection status.

I made the Registry changes suggested and now the Computer Browser Service on box 2 fails with a Server Specific Error 2550.

When I try the command below on box 1 I get the following error.

Code:
> net use z: \\192.168.0.5\c$ /user:administrator

System error 53 has occurred.

The network path was not found.