Assuming Spanning's suggestion resolves the IMS Login Error 0x800706ba - I'd say that's a great solution, especially when one is dealing with a large number of workstations.
A more decentralized approach to the problem has been documented by dwgeis1 on the yahoo discussions:
From: "dwgeis1"
Date: Thu Sep 23, 2004 11:49 am
Subject: Re: IMS Client and XP SP2
> I called Avaya today and was told that SP2 was not supported.
They
> also were not able to provide any inkling of when it WOULD be
> supported or provide me with the solution I found below. I would
> really like to go into a rant about this but I'll keep it
> professional.
>
> Here's what I found. I hope it will be helpful to you.
>
> First you have to have the requisite firewall port open either by
> turning off the pesky firewall altogether or by opening the port
> used by Ipoffice (I believe it was 135).
>
> Next, start dcomcnfg, navigate to component services, computers,
my
> computer. Right click on my computer and choose properties.
>
> Then choose the com security tab, access permissions, edit
limits.
>
> Then grant "Anonymous Logon" to the everyone user.
>
> Obviously this opens up some sort of security hole that Microsoft
> was trying to close but at least it allows us to have SP2 in place
> and continue to work on IMS while we wait for a patch from Avaya.
> Please follow this procedure at your own risk.
>
> David
I have successfully testing this solution.