I found that the VNC was not working on my PC(Windows XP) when it was locked using Ctrl+Alt+Del. Interestingly it did worked when the PC was not locked.
While installing VNC make sure that you select the option to install it as a service so it can be seen in services.msc
On installing VNC, it provides an option to install as a service. If it is not installed as an service, the VNC cannot be done on a locked PC.
This is what as told by one of my colleagues. Seems to be logical.
Windows uses API from gina.dll which provides the capabilities for locking/unlocking the workstation. API from gina.dll are accessible only by the windows services and not by other programs.