Well problem solved, ESX server decided to cooperate after a night of being very stubborn. Not sure why it would not cooperate at for hours, then all of a sudden work. Firewall is back on the Win 2k8r2 server and everything is working the way it should.

Installed Starwind 5.0 on Windows 2008 R2 server, disabled firewall in Windows for initial config. I created Target Volume in Starwind, shows as LUN0 and Active. On ESX 4.0 server Using the vShere client I created VMkernal Port for iSCSI, enabled Software iSCSI Client in Security Profile/Firewall Pr...