Friends can join LAN server game but cant play

I've got two computers on a LAN. Both computers have their own copy of Killing Floor. One was bought on DVD and one downloaded thru Steam.



Both games can start a Listen server on the LAN, and the other machine see the game, and join.



But when the second person joins, they cant play, they can only watch the other player.



Anybody have any idea whats wrong and what can I do to fix it?