SOLUTION: I turned off UAC on my Vista machine and everything started working perfectly. I shouldn't have had to do this because I was running multiplicity as an admin, but once I turned UAC off it all started working great!
I tried setting a hot-key to switch and this didn't work either. My friend has had this working with WoW, so I'm not sure why I can't get it to work.
I use Vista as my primary machine and an XP Pro box as my secondary. I've been told by another user that they have had no problem using Multiplicity to play a Full Screen Game and mousing over to the secondary machine. This was the whole reason I wanted multiplicity. Playing in windowed mode did not fix my problem either. I looked and the option to 'lock keyboard and mouse when full screen app is running' wasn't checked either. I don't know what I'm doing different from my friend. Any help