This problem tends to occur when using Windows 98 or Windows ME. This can be resolved by following these steps:
Recreate the Dial Up Connection as described
here.
Windows 95/98 - This error can occur if the Require encrypted password option is enabled on the Server Types tab
in the connection's properties, or an incorrect user name or password have been entered. See
MS KB Article Q199780
All versions of Windows - This error can occur if you are attempting to
connect to a Windows 2000 domain that has had a RRAS (Routing and Remote
Access Services) server log on without administrative privileges. See
MS KB Article 227747