Almost positive this is a firewall issue. From Open VPN.NET:
"Connection Initiated with x.x.x.x" but I cannot ping the server through the VPN.
This usually occurs because a firewall on the server or client is blocking the TUN/TAP interface. If you already have a firewall on your system, chances are high that it will block incoming connections on new interfaces by default, so you will need to add explicit firewall rules to allow connections via the TUN/TAP interface. In general, it's reasonable to open up TUN/TAP interfaces to all traffic, since any incoming connections over these interfaces will already have been authenticated by OpenVPN. An exception to this rule would be if you don't fully trust the OpenVPN clients connecting to the server. Assuming that's not the case, on Linux, TUN/TAP interfaces can be opened up with theiptables shell command:
- Allow TUN interface connections to OpenVPN server
iptables -A INPUT -i tun+ -j ACCEPT
# Allow TUN interface connections to be forwarded through other interfaces
iptables -A FORWARD -i tun+ -j ACCEPT
# Allow TAP interface connections to OpenVPN server
iptables -A INPUT -i tap+ -j ACCEPT
# Allow TAP interface connections to be forwarded through other interfaces
iptables -A FORWARD -i tap+ -j ACCEPT
On Windows XP, the firewall can be accessed by Control Panel -> Security Center -> Windows Firewall -> Advanced. In the Network Connection Settings control, uncheck the box corresponding to the TAP-Win32 adapter.
Note that if you want OpenVPN clients to be able access other machines on the LAN, it is not enough to merely disable firewalling on the TUN/TAP adapter. You must also enable IP forwarding and set up a return route from the LAN gateway to the OpenVPN server. This is discussed at length in the HOWTO.
Also note that firewalling the TUN/TAP interface is a completely separate operation from firewalling the internet-facing interface. For example, suppose an OpenVPN client is sending email via SMTP over the OpenVPN tunnel. The OpenVPN server firewall will need to allow both incoming encrypted data on TCP/UDP port 1194 via the internet-facing interface as well as incoming SMTP connections via the TUN/TAP interface.