At what point are you receiving this error message? It looks like an error being returned for logging in and may indicate incorrect proxy settings for your web browser.
Have you followed the instructions in this post? http://forums.microsoft.com/WindowsOneCare/ShowPost.aspx?PostID=1516793&SiteID=2
Have you removed all other security software from the PC before installing? If not, please remove all other security software.
Is Internet Explorer your default web browser? Try setting IE as the default before activating.
Does PeoplePC use a dial-up accelerator? If so, disable it and try again.
You may want to contact support.
How to reach support (FAQ) - http://forums.microsoft.com/WindowsOneCare/ShowPost.aspx?PostID=2421771&SiteID=2
-steve