I recently put together a new computer, and installed the full version of Win XP w/SP2. With this, I have Quix unblocked at the Windows firewall, and the firewall enabled. I have a linksys Wireless router, and the firewall in it is disabled.
Quix works fine except for trying multiple ISO transfers, and of course, as it says in the info for Quix, NEVER try to abort an upload. Neither Quix or Avalaunch can deal with it, and they both crash. It took me a few tries to find out that when Quix crashes, you might save some time and headaches, to reboot windows and your Xbox. Avqalaunch never recovers, and Quix rarely does.
I have heard of problems with the windows firewall on the SP2 upgrade that doen't exist on the release of Win XP, such as it not always unblocking the requested program. Also, I've heard with both versions, that Windows sometimes resets itself to a firewall state. I have never experienced this, but it may have something to do with the fact that I always go to the control panel to configure it, as seemed to work for one other member.
So maybe a solution would be the full version of Win XP with SP2, and be sure if you are using a router, that the firewall on it is disabled.
I didnt try it with the router firewall on, but I assume it would work if you are just sending ISO's to a larger HDD, but probably not it you are trying to look at the HDD or rip a game. But if you are using Avalaunch, you probably need full function, so you would either need to open a port, or disable the firewall.