TestStudio : Recorder unable to connect

This issue is in regards to our company's licensed version of Telerik Test Studio. Our original request was Support ID:541137

Test Studio version installed:
2012.1.411.0

At present our issue is that TestStudio is unable to do the following:
1. Connect recorder to IE ( ver 8 & 9)
2. Playback in IE (ver 8 & 9)

TestStudio will presently:
1. Playback in Firefox
2. Playback in Chrome

Environment:
Dedicated Virtual Machine with Windows Server 2008 R2, latest Microsoft updates.
Environments are configured with Visual Studio 2010 installed and the TestRun machine is without.


When attempting to record a new event the following error is generated:
[06/07 08:28:39,Telerik.TestStudio.exe(5328:9)] First trace message from pool unnamed thread (managed ID = 9, native ID = 8752).
[06/07 08:28:39,Telerik.TestStudio.exe(5328:9),Framework] Manager.get_ActiveBrowser() : The current ActiveBrowser is either invisible or disconnected.
[06/07 08:28:39,Telerik.TestStudio.exe(5328:9)] First trace message from pool thread "EnsureActiveBrowser worker" (managed ID = 9, native ID = 8752).
[06/07 08:28:39,Telerik.TestStudio.exe(5328:9),Framework] InternetExplorerActions.LaunchNewBrowserInstance() : Process launched (ID=532, Path="C:\Program Files (x86)\Internet Explorer\iexplore.exe", Arguments="-nomerge about:blank").
[06/07 08:28:40,Telerik.TestStudio.exe(5328:9),Framework] InternetExplorerActions.LaunchNewBrowserInstance() : Attempting to attach on IE frame (HWND=787976)...
[06/07 08:28:40,Telerik.TestStudio.exe(5328:9),Framework] Connector.Start() : Process launched (ID=1460, Path="C:\Windows\SysWOW64\rundll32.exe", Arguments="ArtOfTest.Connector.dll,AttachToWindowEntryPoint 657022").
[06/07 08:28:40,Telerik.TestStudio.exe(5328:9),Framework] Connector.Start() : Process exited (ID=1460, ExitCode=0, Path="C:\Windows\SysWOW64\rundll32.exe", Arguments="ArtOfTest.Connector.dll,AttachToWindowEntryPoint 657022").
[06/07 08:28:40,Telerik.TestStudio.exe(5328:9),Framework] InternetExplorerActions.LaunchNewBrowserInstance() : Process "Telerik.TestStudio" (ID=5328) is assumed to host the controller.
[06/07 08:28:40,Telerik.TestStudio.exe(5328:9),Framework] Connector.InjectCode() : ------- Function Start -------
[06/07 08:28:40,Telerik.TestStudio.exe(5328:9),Framework] Connector.InjectCode() : Connection string: C:\Windows\assembly\GAC_MSIL\ArtOfTest.InternetExplorer\2012.1.411.0__5339893a7cefe4d6\ArtOfTest.InternetExplorer.dll?ArtOfTest.InternetExplorer.ArtOfTestPluginEntryPoint?5328
[06/07 08:28:40,Telerik.TestStudio.exe(5328:9),Framework] InternetExplorerActions.WaitForDocument() : Attempting to get IHTMLDocument2 from Internet Explorer HWND 657022 on another thread...
[06/07 08:28:40,Telerik.TestStudio.exe(5328:12)] First trace message from pool thread "WaitAsync polling wait worker" (managed ID = 12, native ID = 8672).
[06/07 08:28:40,Telerik.TestStudio.exe(5328:12),Framework] <>c__DisplayClassf.<WaitForDocument>b__8() : Attempting to get document from window handle
[06/07 08:28:41,Telerik.TestStudio.exe(5328:9),Framework] InternetExplorerActions.WaitForDocument() : IHTMLDocument2 successfully retrieved.
[06/07 08:28:41,Telerik.TestStudio.exe(5328:9),Framework] Connector.InjectCode() : Sending WM_COPYDATA to HWND 657022 (lpData = "C:\Windows\assembly\GAC_MSIL\ArtOfTest.InternetExplorer\2012.1.411.0__5339893a7cefe4d6\ArtOfTest.InternetExplorer.dll?ArtOfTest.InternetExplorer.ArtOfTestPluginEntryPoint?5328")...
[06/07 08:28:41,Telerik.TestStudio.exe(5328:9),Framework] Connector.InjectCode() : Returned from sending WM_COPYDATA (LRESULT=0, GetLastError()=ERROR_ALREADY_EXISTS).
[06/07 08:28:41,Telerik.TestStudio.exe(5328:9),Framework] Connector.InjectCode() : ------- Function End -------
[06/07 08:29:11,Telerik.TestStudio.exe(5328:9),Recording] <>c__DisplayClass9.<EnsureActiveBrowser>b__8() : EXCEPTION! (see below)
     Outer Exception Type: System.TimeoutException
     Message: Wait for condition has timed out
     HRESULT: 0x80131505 (Official ID (if app.) = COR_E_TIMEOUT, Error Bit = FAILED, Facility = FACILITY_URT, Code = 5381)
     Call Stack:
          at ArtOfTest.Common.WaitSync.CheckResult(WaitSync wait, String extraExceptionInfo)
          at ArtOfTest.Common.WaitSync.For[T](Predicate`1 predicate, T target, Boolean invertCondition, Int32 timeout, WaitResultType errorResultType)
          at ArtOfTest.Common.WaitSync.For[T](Predicate`1 predicate, T target, Boolean invertCondition, Int32 timeout)
          at ArtOfTest.WebAii.Core.Manager.WaitForBrowserToConnect(Int32 browserIndexToWaitFor)
          at ArtOfTest.WebAii.Core.Manager.LaunchNewBrowser(BrowserType browserToLaunch, Boolean waitForBrowserToConnect, ProcessWindowStyle windowStyle, String arguments)
          at Telerik.TestStudio.Web.WebRecorderWindowManager.GetActiveBrowser(Boolean createOneIfNeeded, String arguments)
          at Telerik.TestStudio.Web.WebRecorderWindowManager.<>c__DisplayClass9.<EnsureActiveBrowser>b__8(Object obj)

[06/07 08:29:11,Telerik.TestStudio.exe(5328:9),Recording] RecordViewController.BrowserLaunched() : Error launching the recorder. Error : System.TimeoutException: Wait for condition has timed out
   at ArtOfTest.Common.WaitSync.CheckResult(WaitSync wait, String extraExceptionInfo)
   at ArtOfTest.Common.WaitSync.For[T](Predicate`1 predicate, T target, Boolean invertCondition, Int32 timeout, WaitResultType errorResultType)
   at ArtOfTest.Common.WaitSync.For[T](Predicate`1 predicate, T target, Boolean invertCondition, Int32 timeout)
   at ArtOfTest.WebAii.Core.Manager.WaitForBrowserToConnect(Int32 browserIndexToWaitFor)
   at ArtOfTest.WebAii.Core.Manager.LaunchNewBrowser(BrowserType browserToLaunch, Boolean waitForBrowserToConnect, ProcessWindowStyle windowStyle, String arguments)
   at Telerik.TestStudio.Web.WebRecorderWindowManager.GetActiveBrowser(Boolean createOneIfNeeded, String arguments)
   at Telerik.TestStudio.Web.WebRecorderWindowManager.<>c__DisplayClass9.<EnsureActiveBrowser>b__8(Object obj)


Back story:
1. Test Studio was initially installed on a fresh VM of Windows Server 2008 R2.
2. The VM did not have visual studio installed or any other applications outside of the OS.
3. After installing Test Studio, an application error was generated when attempting to run.
4. This was narrowed down to a missing visual studio library, which was included with the VS 2008 Redistributable.
5. The VS 2008 Redistributable was downloaded and installed from this link: http://www.microsoft.com/en-us/download/details.aspx?id=29
NOTE: This is the 32bit x86 distributable.
6. After rebooting and further tests the VS dll reference error no longer occured.
7. Test Studio is then unable to connect the recorder to or playback in IE.
8. Per recommendations from our original support request (Support ID:541137 ) Visual Studio 2010 was installed and run in administrator mode.
9. Test Studio continued to have difficulties in IE.
10. The Test Studio project was then opened in VS 2010 and the target cpu was adjusted to x86.
11. The issue persisted (same wait for error).