The error message means that it can't make a successful call to the membership provider - which generally means there is an issue with the membership provider setup somewhere.
Have you added users to the membership database from another management tool (iis?) and tried to login with the credentials.
If you're sure that the machine.config is correct, and that the web.config's are properly inheriting from the machine.config, it usually is a permission issue.
You may want to run SQL Profiler to see if any calls are making it through to the database (or at least be able to see if there are authentication errors). Check profiler when you get the "Membership Provider has not been configured correctly" message,
as it is sending a query to the database at that time.