Just in case anyone comes across this old string looking for an answer like I did this morning... I got this same error with MR 2012 RU5 today. I hadn't seen it before. I was installing MR right on the SQL Server itself. We were using a DNS alias here, which I haven't tried before, so I thought it might be related. The DNS was working fine, but I added a host file entry anyway. However I believe the actual fix was adding the BackConnectionHostNames reg entry. This is how to do it (from an MS article):
Create the Local Security Authority host names that can be referenced in an NTLM authentication request
To do this, follow these steps for all the nodes on the client computer:
1.Click Start, click Run, type regedit, and then click OK.
2.Locate and then click the following registry subkey: HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Control\Lsa\MSV1_0
3.Right-click MSV1_0, point to New, and then click Multi-String Value.
4.In the Name column, type BackConnectionHostNames, and then press ENTER.
5.Right-click BackConnectionHostNames, and then click Modify.
6.In the Value data box, type the CNAME or the DNS alias, that is used for the local shares on the computer, and then click OK.
Note Type each host name on a separate line.