The "The remote computer requires Network Level Authentication, which your computer does not support." error is what you get when you try to connect to computer running Windows Vista with using recently updated Remote Desktop Client.
It looks like Windows XP doesn't support Network Level Authentication even with the new Remote Desktop Client so you will have to turn NLA off in Vista.
Got to System Properties and select "Allow connections from computer running any version of Remote Desktop (less secure). It's less secure, but it works.