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I can not seem solve this issue which prevents 2 x WIN7 machines on the same local network establishing RDC.

TeamViewer works fine. So not network issue.

Where should I look for error logs? What should I try to debug the problem?

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more info required.. what are the error messages, do you get to the login screen, do all users have permissions to rdp, is rdp service running? – stijn Jun 27 '12 at 18:10
In addition to @stijn's comments, Windows event logs may help. Is firewall on? – Dave M Jun 27 '12 at 18:11
The requested machine have RDP enabled? – Diogo Jun 27 '12 at 18:15
The remove desktop client in Windows 7 is limited to a single connection. You would need to be using Windows Server 2008 R2 in order to allow multiple users to connect to it at the sametime. – Ramhound Jun 27 '12 at 19:11
Is it Windows 7 Pro? Home cannot be an RDP server. – JoshP Jun 27 '12 at 20:09

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