There is a known problem with ARA servers running Open Transport on a LocalTalk network. Clients will be able to see services but will be unable to connect to them as you described above.
This issue has been fixed with Open Transport 1.1.1 which is available on Apple Computer's online services. These articles can help you locate Open Transport 1.1.1:
* "Where To Find Apple Software Updates" -- Lists online services for free Apple software updates.
* "Obtaining Apple Product Support in the USA" -- Lists 800 numbers and online services for software updates, Apple support information, and a subset of the Apple Tech Info Library.
Article Change History:
23 Oct 1996 - Updated with Open Transport 1.1.1 availability.