There was a security change with the SMP3 server in SP07 to be more secure. This has affected the WPF clients ability to connect.
You have two options to fix.
1) Change the security in the SMP3 server to allow the lower TLS connection types. Not my recommendation
2) Upgrade to the latest SDK SP08 PL02 WPF client which has been updated to properly work with the default security settings in SMP3 Server SP07.
I recommend the second option as that also gives you the latest fixes for the WPF client.
--Bill