LAN servers restricted to local client error

I guess i’ll start with my specs:
CPU: AMD phenom quad core black edition
RAM: 4 gigs of mushkin ram (can’t remember which offhand, good stuff though)
GPU: BFG GeForce 250 GTS
OS: Windows 7

I don’t have many addons installed past… PSX and the official valve games like hl2, DoD etc etc (bought orange box)

as for changes made I haven’t really fiddled with my game at all yet since redownloading it after my reformat to install windows 7 on my new rig. Anyways the problem i’m having is that I am trying to play a game with my friend on steam who also has a legitimate copy of garry’s mod, and has hl2/ep1/2 (the only difference is they dont have portal/DoD/CSS etc just those games) so when they host and I try to join via the friends list or invite it gives me an error saying:
LAN servers are restricted to local clients (Class C), it does the same thing if I try to add their server as a favorite and the server wont even show up on my friends tab unless we use hamachi, now before anyone leaps down my throat about hamachi we both disabled our hamachi adaptors before attempting to play together and then enabled hamachi and tried to play using that to emulate a LAN server. Funnily enough when hamachi was on the server showed up under the friends tab but once again we got stuck with the class C error. This also happens when I try to host. How would I go about fixing this?
Edit: I also looked this up on google but found nothing past people screaming about pirated versions or russian websites.

is there no way to fix this? I know its only been a day but this problem is really annoying as I cannot play gmod online with any of my friends.