Although you can log in locally without a password, by default, WindowsXP Pro does not allow network users to access the computer without a password. Typically you will receive an Unknown error 31 if this is the case.
To change this setting:
Run gpedit.msc
Go to Computer Configuration / Windows Settings / Security Settings / Local Policies / Security Options
Double click on Accounts: Limit local account use of blank passwords to console login only
Disable this option
