I'm using ss2k08 but this might go in ss2k12, for the same reason.
EXEC sp_configure 'xp_cmdshell', 1
GO
RECONFIGURE
And a quick test of a commandline like yours:
EXEC xp_cmdshell 'dir /b /s c:\users\mb\my documents\sql server management studio\*.txt'
The sql facility "xp_cmdshell" is by default disabled for obvious reasons.
If this doesn't clear up the error with the client, check the instance that's running in the services under the compmgmt.msc console. Might even have to change the way the log on is happening. Failing that, read the directions for ss use in BOL.