I have the following section declared in the webconfig file to allow impersonation , I have shared the folder to public access within the network on the other machine
I can't tell, because you have rightfully blocked out the username, but if you're not fully declaring the username with the domain name, then it will fail with this error.
Are you using the domain name?
Everything else about your setup seems correct.
Your domain name could either be the name of the domain you are connected to, or the name of your PC. An easy way to find out is to open the command window and type:
echo %userdomain%