I have now received the official response from Simon Conant, MCSE Security Programme Manager for Microsoft. The problems stems from when downloaded the L2TP/IPSec NAT-T Update for Windows XP (Q818043) from Windows Update (which has now been removed).
According to Simon the update was a feature add - to run WindowsXP clients using the IPSEC security protocol with NAT translation.
- Microsoft has released an update package to enhance the current functionality of the Layer Two Tunneling Protocol (L2TP) and Internet Protocol security (IPSec) on computers that are running Windows XP or Windows 2000. This update includes improvements to IPSec to better support virtual private network (VPN) clients behind network address translation (NAT) devices by implementing NAT as specified in the Internet Engineering Task Force (IETF) RFC 3193 and draft-02 of the IETF NAT-T specification. The update also includes additional support for stronger IPSec protection by using the 2048-bit Diffie-Hellman algorithm (Group 14).
Although this problem may seem like a error, it is in-fact just IPSEC using its default security setting, which is to make the connection safe. But in this case it can unfortunately cause loss of internet functionality.
You can un-install this update via Add/Remove (control panel) as well as being able to call Microsoft Support.
View: L2TP/IPSec NAT-T Update for Windows XP and Windows 2000
View: Original Neowin story - Microsoft yanks a bad Windows patch
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