This error in Microsoft Dynamics CRM 4.0 means that the Server name you have specified does not resolve to the IP Address that the Active Directory is pointing to. A good way to check what IP the CRM Website is expecting is to open up IIS Manager, right-click on the "Microsoft Dynamics CRM" Website, choose "Properties". On the "Web Site" tab under "IP Address", it should say "All Unassigned". If it doesn't say All Unassigned, then the IP Address it has specified is not what the Active Directory is resolving the website to.
A quick workaround can be done as follows as specified by KB Article 950542:
1. Click Start, click Run, type regedit, and then click OK.
2. Locate the following registry subkey:
3. Right-click MSCRM, click New, and then click String Value.
4. In the Name box, type LocalSdkHost.
5. Right-click LocalSdkHost, and then click Modify.
6. In the Value box, type the name of the Microsoft Dynamics CRM server or the host header, and then click OK.
Note Do not specify http:// or the port number.
7. Locate the LocalSdkPort key at the same location. Verify that the port that is listed matches the port that is being used for the CRM Web site.
8. If the value of the LocalSdkPort key is incorrect, right-click LocalSdkPort, and then click Modify. Type the correct port number, and then click OK.