Raghu,
Sorry that you are running into this issue. This error is basically thrown when you are behind a firewall/proxy server. This error could also be thrown if you supply incorrect user credentials (Username & password) which does not authenticate the server.
Can you please answer some more queries to help us investigate further :
1) Please share your MyEclipse installation details from MyEclipse > Installation summary > Installation details.
2) Are you behind a firewall or proxy ? If yes then you have to set up your proxy details here – Window > Preferences > General > Network Connections and restart your IDE.
3) Could you please confirm if you are able to connect to the repository using cvs command line client or WinCVS /TortoiseCVS client. ? Are you able to access the projects CVS repository through Web UI using the same username & password that you are trying to connect to server using command line?
4) Clear the contents of the .log file located at <%Workspace dir%>/.metadata/.log file, replicate the issue and attach the log file here.