I was trying to connect MS Project 2010 to a Project Web App (MS Project Server), got this error “.
The root cause of the issue was that, the MS Project 2010 was not able to connect to Project Web App using the logged on user’s credential.
I had to make a change to the following browser settings to get this working.
IE –> Tools –> Internet Options –> Security –> Intranet (in my case PWA site is hosted in intranet zone)
Custom Level –> User Authentication –> Logon –> Prompt for user name and password