Sorry for the delay in the reply guys.

And also for the confusion it seems. I've got Zone Alarm running on both pc's, and Norton Antivirus on both as well. Have completely (I think) uninstalled Norton Firewall from both pc's.

DVOM - Have tried all kinds of combinations, including at one stage no antivirus and no firewall on either machine, i.e not a single piece of firewall or antivirus software on the network. Even at that point, I still couldn't get I.E. to work on the client!
And tried assigning a static IP address. Still wasn't happy.

ylen13 - Tried shutting down Zone Alarm on both pc's. No success.
Have uninstalled Norton Firewall. now just running Zone Alarm on both. However, the problem started BEFORE I was using Zone Alarm. Wondering if despite uninstalling Norton Firewall there is still some setting hidden away that has been left behind.