What sort of environment is this? Are both computers in the same domain? Do you only have a workgroup?

Getting MSDTC to work when you don't have the trust from a domain can be very difficult. I have been successful in my workgroup at home, by have the same name for the service accounts for the DTC service with the same password.

On SQL 2008 there is a server option to turn off promotion to disitributed transaction, but alas it is not available in SQL 2005.

By the way, this forum is intended for the most recent release of SQL Server, SQL 2014, currently in beta.