Wow, I am not real sure on this one. I was finally able to get it to run on my machine when I figured out that I could not use \\localhost\TestServer as a service but instead had to just use TestServer. I was not able to get any other PCs to connect to it though, however I think it may be a privileges thing.
I did find this app note that also discusses how to use DDE and LabVIEW.
Using DDE in LabVIEW (Windows Only)I hope it helps.