When he creates a new game on ICO, I can see his game even if I have the filter button set to "Hosted By Friends".

But when I try to join it, a message says "Game Join Failed... Only friends of the host may join this game"

What's going on?  When we clicked on each other and clicked "Add Friend", it just takes us to each others' Steam Profiles.  We are already Steam friends.

Please help.

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EDIT: When I try to host a game on ICO, and he joins me, he gets the message "Connect Failed... Game already started".

And it kicks ME out of the lobby I created and back to the "Create Game" screen.

We did this multiple times on Skype so I know that me getting kicked out  of MY lobby occurred exactly when he tried to join my lobby.

Looks like there is some bugs.  Are these known to the devs?  Any solution or work-around?

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EDIT 2: Hosting a public game with a password works fine.  We'll do that for now.