Why a RIP v2 based router VM won't do routing?

Hi everyone, 

I've this strange issue where this this VM based Win2003 RIP v2 router is not routing traffic between two subnets. I'm trying to simulate a multi subnet VM envirionment. Here is the setup. 

at Hyper-V 2012 level:

vSwitch 1:HQ-Subnet: 10.0.0.0/24
vSwitch 2:        State-Subnet: 192.168.0.0/24

Both vSwitch 1 & vSwitch 2 are of type "Internal", not "Private".

3 VMs are in network: DC1, ROUTER, and CLIENT1

ROUTER: Win2003 Std VM with two NICs
========================================

NIC1:Plugged into HQ-Subnet
        10.0.0.254
        255.255.255.0

NIC2:Plugged into State-Subnet
        192.168.0.254
        255.255.255.0

RRAS is configured to act as LAN router. RIP v2 protocol installed and added with above two interfaces. After it becomes stable it starts two show routing table. 
ROUTER is also running DNS and hosting a secondary zone of DNS domain zone running on DC1. I remember this was the minimum setup required to get things going with simple networks to utilize RIP v2 based routers in Windows environment.

DC1:
====
DC1 has one NIC plugged into HQ-Subnet:

10.0.0.10
255.255.255.0

DC1 is running DNS and domain controller

CLIENT1:
========
CLIENT1 has one NIC plugged into State-Subnet
                            192.168.0.10
                            255.255.255.0
Default Gateway:            192.168.0.254
DNS:                            192.168.0.254

DNS seems to work fine as I could resolve DC1's IP address from CLIENT1, also DNS running on ROUTER is extracting copies of DNS domain zone OK from master DNS at DC1. ROUTER is listed as valid name server on DNS running on DC1.

All srv records appear normally on DNS running on ROUTER.

Problem:
=======
When enrolling CLIENT1 in domain running on DC1, it failed to reach DC1, DCDIAG.txt reported it could find SRV record as DC1 but server is not reachable/incorrect IP address.

Running a tracert from CLIENT1 command prompt to DC1 is timing out. ROUTER is default gateway for CLIENT1.  Same happens to tracert on DC1.
DNS running on ROUTER shows IP addresses of DC1 and CLIENT1 OK. 

When examining the status of RIP v2, it does show numbers updating for "Responses sent" column but "Responses received" column remains with 0s.
What is preventing routing to occur at ROUTER?