I needed to access some files on my laptop (Vista) from my desktop (Windows 7). I set up file sharing and it worked well, but only in one direction: Vista could access files on W7, but not vice-a-versa. The error code I got was 0x80070035. I spent hours searching for a solution, before stumbling across a fix.
My two computers are named as follows:
GB-PC (Windows 7)
GB-LP (Laptop, running Vista)
When I created a test shared folder on my Vista laptop, I noticed it assigned it the address of \\GB-lp\test rather than the address of \\GB-LP\test - i.e. the 'lp' bit was in lowercase. I suddenly wondered if this was the cause of the 'path not found' (0x80070035) error.
To test it, I returned to my W7 deskop and opened up the My Computer folder. In the address bar, where it says "Computer >" I deleted this and typed in \\GB-lp. All of a sudden I was prompted for my laptop's login details and it worked! So, my recommendation is to create a test shared folder on your Vista machine and see what case it considers its name to be. I can't imagine it's meant to be case sensitive, but it worked for me!