If you have a firewall on either machine disable it, by default windows firewall is enabled with SP2.
VNC server runs as a service on the client achine make sure the service is started and running.
Make sure that both your machines are on the same subnet and have the same subnet mask and gateway specified in the ip network settings. You can verify this by disabling the firewall on both machines and try to ping one another. If it works then your ip setting are fine and it is probable something to do with VNC try uninstalling and reinstalling.