sbs 2003 DC – problem with XP Pro joining domain

I have looked through other questions and topics and have had no clear direction based on others.

I have a SBS 2003 R2 domain controller. External D-Link router handling DHCP.(192.168.2.1)
fixed IP address for Server (192.168.2.254)
I am unable to joing an XP Pro work station to the domain. I can see the domain controller in explorer and can log in that way but I can’t join it. domain is SBS-DS.local
I’m sure it’s a DNS issue but I can’t figure out what to do.
when I run http://sbs-ds.local/connectcomputer it just sits there

Any other deails that will help just let me know,