I have had simular problems even using enterprise manager on the second server server B. 

my server A, w2k3 and a default msde sp3 install

what worked for me was to reinstall...

to add to Mahender post

if PC1 is XP PRO sp2 you will need to configure or turn off the windows fire wall.

First backup the database then back up the log  with the truncate option then shrink the data base.

I have see this thake a couple of times before the files shrink...