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Fatal:The remote server returned an error: (401) Unauthorized.

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I have successfully integrated your webpart in our sharepoint 2007 site. I have also made sure NT AUTHORITY\Authenticated Users has "Personal Features" and "Personal Site" rights. I can see all the people in the hierarchy. However in each node below the displayed user I get the message "Fatal: The remote server returned an Error: (401) Unauthorized."
 
I have copied the content of one of the nodes and it is as follows:
 
Demo User
Demo team
Fatal:The remote server returned an error: (401) Unauthorized.

Here First name is "Demo"
Last Name is "User"
Title is "DEmo team"
 
Could someone suggest what could be causing the 401 error.

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