When I run Samba interactively and try to connect it from XP, Samba gives:

open_oplock_ipc: Failed to get local UDP socket for address 100007f. Error was Cannot assign requested address

After that Samba goes down and nothing happens.

Any ideas what's wrong?

Your local loopback interface is the reason for this problem,
Run ifup lo & checkback.

I did that and now I can ping localhost. But now there is another problem. Samba returns:

getpeername failed. Error was Transport endpoint is not connected
write_socket_data: write failure. Error = Connection reset by peer
write_socket: Error writing 4 bytes to socket 21: ERRNO = Connection reset by peer
Error writing 4 bytes to client. -1. (Connection reset by peer)

Do you have proper ethernet card drivers installed ?

Please check.

I guess they have to be because the connection between Windows and Linux works fine otherwise.

Even though its clear with the message that connection is being reset by peer. But how come you are getting this error while starting samba service.

Generally this error floods the log files when some client copies & access any share.

Yes well it does come when I try to connect from XP.

So you are able to start samba service. If yes then first of all testparm your samba & post the output here & also tell me do you get those getpeername failed with every MS boxes while accessing samba or any particular ones.

Here is the output:

Load smb config files from /etc/samba/smb.conf
Processing section "[homes]"
Loaded services file OK.
Server role: ROLE_STANDALONE
Press enter to see a dump of your service definitions

# Global parameters
[global]
workgroup = MSHOME
server string = %h server (Samba, Ubuntu)
encrypt passwords = No
obey pam restrictions = Yes
passdb backend = tdbsam, guest
passwd program = /usr/bin/passwd %u
passwd chat = *Enter\snew\sUNIX\spassword:* %n\n *Retype\snew\sUNIX\spassword:* %n\n .
syslog = 0
log file = /var/log/samba/log.%m
max log size = 1000
dns proxy = No
panic action = /usr/share/samba/panic-action %d
invalid users = root

[homes]
comment = Home Directories
read only = No
create mask = 0700
directory mask = 0700

And I don't know what happened but now Samba gives no output. I tried from two different Windows machines, and Samba just crashes. No output anymore.