Ok, I have no trouble setting up my server, or connecting to said server with my personal machine, but when my friend attempts to join we get this message:
Internal client error: java.net.UnknownHostException: session.minecraft.net
A quick google search seems to suggest that this is because his version is different than mine, except he's running MY FILES. (I copied my .minecraft folder and transferred them to his laptop, then we had him login once using his credentials to finalize the transfer)
online-modeto false, since directly starting the Minecraft client without using the launcher will not validate your login – Zommuter Jan 16 '12 at 19:33