I take it the living room computer doesn't use a software firewall
But when you updated it too SP2, the Windows firewall get's enabled by default
Not quite the same as products such as ZoneAlarm, Sygates, etc...
Unlike XP firewall, they will help to block both incoming and outgoing traffic
You'll find, when users are trying to network computer
One of the first steps when behind a hardware firewall
Disable any other firewall software and take it out of the equation for troubleshooting purposes
After you have everything running properly, now it's time to enable software firewall and get it running properly
But I'm glad you shared what steps you did

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Here's some more info on Firewalls
http://www.bleepingcomputer.com/tutorials/tutorial60.html