[blackwulf]

First I would like to thank everyone for their help. Thank you very much!

This is what did the trick for me..

I switched the port to 7000 and I added the additional switches that Johan K suggested to my client launch shortcut.
--tcpclient --ipadr 127.0.0.1 --port 1024

I think the key was the tcpclient switch without it I still can't connect. But when applied it works like a charm.

I am running windows XP Home Edition. I also am running Zone Alarm firewall. I have two shortcuts on my desktop with the following configurations.

SERVER SHORTCUT
"C:\Program Files\dominions2demo\dom2demo.exe" -x --nointro --quickhost --tcpserver --port 7000 --noclientstart --nosound --nomusic --window

CLIENT SHORTCUT
"C:\Program Files\dominions2demo\dom2demo.exe" --tcpclient --ipadr 127..... --port 7000

Thanks Again!

-Blackwulf