Windows Vista or 7 could return following error message while doing bluetooth network connection for iPhone tethering.
The connection with the Bluetooth network device failed. The device may already be connected to another computer, or it may need to be configured to accept connections from this computer. Consult your device documentation for further information.
It is because iPhone doesn't start tethering yet. If iPhone starts tethering, it will send appropriate response to the computer. In other words, start or turn on the tethering service of iPhone, before making connection with a computer.