Got the solution today,

just run the following:

regsvr32 dpnet.dll

This will reregister the direct play modem/network interface. This was
(apparently) corrupted and causing the hang when it switched into multiplayer
mode.

I was certain the connectivity was good since the ping was good in the
staging area (green bar by player/party name) and the machines could 'see'
each other via TCP/IP.