msdtc-2

I assume that your environment is in Windows Azure virtual machine with SQL Server. Please correct me if my understanding is incorrect.

I was able to confirm the DTC Transaction works fine. The steps I followed are as follows.

1. Installed a DC on Virtual machine
2. Installed two Member Server with SQL Server namely balaksSQL01 and balaksSQL02
3. Configured the MSDTC Setting as follows on both the Servers. Referhttp://support.microsoft.com/kb/250367
   1. Opened the Component Service
   2. Port Range Setting

i. Right Click on the My Computer

ii. Choose the Default Protocol Tab

iii. Click Connection-oriented TCP/IP and properties

iv. Added a Ranged i.e. 50000-50200

1. Access Setting

i. Checked Network DTC Access

ii. Checked Allow Inbound and Allow outbound

iii. Choose No Authentication Required

1. Created the below listed Firewall Rule
   1. For Port 135
   2. DTC Program
2. Created a Linked Server Object on balaksSQL01 to balaksSQL02 and vice versa
3. Created a database disttrantest with emp table
4. Opened a Query window on balakssql01 and executed the below query which returned data without error

begin distributed tran

select * from balakssql02.disttrantest.dbo.emp

commit

Please let me know if you need any clarification.