Oo-er! So Machine 2 can see Machine 1, see drive C, see the My Documents folder and what's in it, but can't read those files. Hmmm. Thinking...
Go to Machine 1, open drive C, Documents and Settings, <Your name>, right-click on My Documents, and see if that is shown as shared. If it is, I reckon there's something in a firewall somewhere that's blocking Machine 2 from accessing it.