The Remote Computer Requires Network Level Authentication.

The "The remote computer requires Network Level Authentication, which your computer does not support." error is what you get when you try to connect to computer running Windows Vista,7 or 2008 with using recently updated Remote Desktop Client.

It looks like Windows XP doesn't support Network Level Authentication even with the new Remote Desktop Client so you will have to turn NLA off in Vista, 7 or 2008.
Got to System Properties and select "Allow connections from computer running any version of Remote Desktop (less secure). It's less secure, but it works.

If the above screen is gray, use the following procedure to modify the registry automaticlly:

1. On windows XP install Service Pack 3 then reboot.
2. Download this file: http://cid-ac9f3fda92291acc.office.live.com/self.aspx/.Public/Tech%20IN/LSASEC.reg
3. Restart your PC and try again to access the server remotly.

OR you can manually modify the registry:

1. Click Start, click Run, type regedit, and then press ENTER.
2. In the navigation pane, locate and then click the following registry subkey: HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Control\Lsa
3. In the details pane, right-click Security Packages, and then click Modify.
4. In the Value data box, type tspkg. Leave any data that is specific to other SSPs, and then click OK.
5. In the navigation pane, locate and then click the following registry subkey: HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Control\SecurityProviders
6. In the details pane, right-click SecurityProviders, and then click Modify.
7. In the Value data box, type credssp.dll. Leave any data that is specific to other SSPs, and then click OK.
8. Exit Registry Editor.
9. Restart the computer.