Somehow it works now. I was trying to test the setup by connecting to the same computer. So I setup another computer with remote desktop, then attempted to connect and the connect button was activated and now It shows active even when trying to connect to self.
To get remote desktop to work you have to allow an ActiveX control to be installed. The first thing to check for is security settings and pop-up blockers. Turn off any pop-up blockers or watch for windows to prompt you to allow ActiveX to install.
I might be connecting the wrong dots here, but it seems that the active x fails to install and without a warning, if the remote computer uses a port other than "80" (default) for remote desktop. That seems to be the only difference. In any case things did work out. Thanks again.