The connection attempt failed because of failure to encrypt data..



This is a very very rare error message. Not an easy error.. usually related to a VPN client setup.

Usually this is related to VPN setup (and sometimes Dial up networking). Usually related to IPSEC or certificate issues (or lack of IPSEC/certificate).

First, make sure the IPSec Service is running (assuming Win2000/2003/XP/Vista/7 and using IPSec for VPN encryption)..

Check for security agents (Forefront, McFee, Cisco, etc..)

Also, if you are behind a firewall or a router running NAT (Network Address Translastion), check to make sure any ports for IPSec key exhange are opened..

Here is a link to check IPSec connection logs from Microsoft:
IPsec troubleshooting in Microsoft Windows 2000 Server