I just got HL2 for Xmas and was having a terrible time getting Steam to work correctly.
I have found the solution and am here to help anyone who has similar errors as explained below.

I have fully documented my problems and tried to be as detailed as I can be to offer as much info
to the public about this problem and solution as I can.

I installed the game just fine, however when it gets to the Steam login window (after installing the
latest version of steam and after it updates itself) I hit "Create new account" then enter my login/pass,
then email, then it goes to the "Secret Question" window, I enter that, hit next and it says "Steam Working".
After that, it pops up this message:

================================================== ================
PreCondition Assertion Failed
--------------------------------------------
Name: ConnectionEstablished
Program: D:\Program Files\Valve\Steam\Steam.exe
File: Src\CSClientConnection.cpp
Line: 755

IsConnected()

(Press Retry to debug the application)

ABORT / RETRY / IGNORE
-------------------------------------------------------------------
================================================== =================


If I hit the RETRY button, the program will give me a windows error,
If I hit the ABORT button, the program will terminate,
If I hit the "IGNORE" button it continues and gives me a second error :


================================================== ==================
PreCondition Assertion Failed
--------------------------------------------------------------------
Name: SocketCreated
Progam: D:\Program Files\Valve\Steam\Steam.exe
File: Src\CSClientConnection.cpp
Line: 908

m_Socket != (SOCKET)(~0)

(Press Retry to debug the application)

ABORT / RETRY / IGNORE
--------------------------------------------------------------------
================================================== ==================


If I press "Ignore" again,
it continues and pops up another anoying error message:


================================================== ==================
PreCondition Assertion Failed
--------------------------------------------------------------------
Name: Connected
Program D:\Program Files\Valve\Steam\Steam.exe
File: Src\CSClientConnection.cpp
Line: 909

m_bConnected

(Press Retry to debug the application)

ABORT / RETRY / IGNORE
--------------------------------------------------------------------
================================================== ==================


If I press IGNORE again,
the Steam program freezes for a few seconds,
then pops up this final error message:


================================================== ==================
--------------------------------------------------------------------
Steam - Error

Could not connect to Steam network.
This could be due to a problem with your Internet connection,
or with the Steam network.

Please visit www.steampowered.com for more info.
--------------------------------------------------------------------
================================================== ==================


But this cant correct.
I check the steam network and it's up and running just fine.
My internet connection is working just fine,
I dont have any noticable problems with it...
I am not running a firewall,
I am not behind a router...

Also, I had my steam folder open at the time that I got those error messages
and after the final error message, a few new files popped into my steam folder,
they are named Steam__106712__2004_12_26T15_3_43C11453.mdmp which is 65KB in size,
Steam__106712__2004_12_26T15_3_33C1531.mdmp which is 63KB in size,
and the "ClientRegistry.blob" file.
Now i've seen several help forums suggest removing the "ClientRegistry.blob" file
and restarting steam.exe, however that does not help my case.
When I do this, and turn on steam again, it has me re-enter all my info agian,
my login name/pass, email, secret question etc... then continues
and does all those errors again.

It was interesting to note that when I boot up my old 10gig backup hard drive
(which is only a basic setup, I.E. a fresh copy of WinXP, vid and motherboard drivers,
and all the latest Windows Updates, and just the Steam program installed),
Steam worked like a charm...
I could create my account no problem, login, change options,
browse games, log out etc with no problems at all.
I couldnt do this on my regular hard drive, so I knew something was confilicting with
Steam in my regular hard drive...
I needed to figure out what the heck was stopping Steam from working properly...

I tried everything from making sure all the internet related "services" are running
on my pc, to power cycling my external cable modem to get a fresh new IP, to beathing
the $h!t out of my pc.... nothing seemed to work, however I can tell you from experience,
that beating the $h!t out of your pc, while it doesnt seem to affect the problem in any
positive way, it did help to relieve the massive ammounts of tension caused by the problem

THE SOLUTION:
=============

After many long, hair pulling, pc beating hours, I finally discoverd the error!
THE PROGRAM "Xfire" (a popular online gaming tool, similar to GameSpy) WAS CAUSING THE ERROR!
I read countless forum posts on countless websites trying to resolve the Steam error when I came
accross this posted at the official Steam website:

This is the EXACT text of the post:
-----------------------------------

We have numerous reports of an incompatibility between the most recent versions of Steam and XFire.
It causes "Could not connect to Steam" errors when you launch Steam.

The XFire program LSP inserts itself in between other programs and Windows. The crash reports that
we looked at involving this all indicate that something is getting corrupted on the way through that
layer, and causing a crash in the Windows networking code when it gets there.

Not everybody with both programs installed is getting this error, but for those that do,
uninstalling XFire makes it stop happening.

Some users have had the problem go away when turning off "Compatibility Mode" for Steam.exe

- right-click Steam.exe
- select properties
- remove the check in the box next to "Run this app in compatibility mode. . ."

Steam works best when "Compatibility Mode" is OFF. It should be off by default.

END OF POST.
-----------------------------------


Just having Xfire installed is enuf for it to cause MAJOR problems with the Steam app.
I too had Xfire installed, although, I never used it, didnt like it that much and preferred GameSpy Arcade
so it simply just sat in my hard drive, dormant, and unused... I never had Xfire running and it still
caused these massive errors! That's rite, it wasnt even running and still caused the errors!

So, the solution to this nightmare-ish problem is to simply remove Xfire.
Uninstalling Xfire will fix the problem like a charm. I did this and the very second that I uninstalled it,
steam was able to connect and work just fine! I logged in, could browse game servers and
etc...

Now I am happily playing online

Hope this helps someone out there.

Regards,

ToXic_Col_Krunch