NTLM response must be setup on both sides. Setup the following on both xp and wind7 and restart.

run “GPedit.msc”
Windows Settings. Expand “Local Policies” and select “Security Options”
Alternate : Type secpol.msc to get editor up then
Locate “Network Security: LAN Manager Authentication Level” in the list and double-click it.
Change the setting from “Send NTMLv2 response only” to “Send LM & NTLM – use NTLMv2 session if negotiated”