I did have that connection enabled and had no luck.

I was able to resolve this by

1) Going into SQL Server Configuration Manager

2) Go to Protocols for MSSQLSERVER (under SQL Server 2005 Network Configuration)

3) Right click on TCP/IP (make sure status = Enabled)

4) Go to IP Addresses tab

5) Make all IP Addresses Active (made sure that both server IPs are listed on there and are enable and active)

Don't know why i had to turn these IP Addresses on but it was the only way I got it to work since I tried other troubleshooting methods.