GNS3 v1.2.1 IOU could not connect to GNS3 devices

So, I downloaded GNS3 v1.2.1, and loving the new UI. I got my IOU and it is working the way it supposed to work; however, I noticed that I could not connect it to any of GNS3 devices, such as routers, Ethernet switches, etc… As shown in my screenshots below. I was getting an error messages stating Server 192.168.56.101 cannot communicate with server 127.0.0.1, most likely because your local server host binding is set to a local address. Also, unable to use Wireshark on IOU devices between IOUs, the error message Cannot start Wireshark: the /home/gns3/GNS3/projects/gns3 … capture file does not exist on this host.

Figure 1
Wireshark error between IOUs

Figure 2
Error message connecting IOU and an Ethernet switch

Figure 3
Error message when connecting an IOU to a router

To resolve this issue, navigate to Preference > GNS3 server > Local server > Host binding drop-down menu select 192.168.56.101 the click Ok

Figure 4
GNS3 settings

Once you made the changes, you would be able to connect your IOU to GNS3 devices; however, you won’t be able to capture the packets between two IOUs. The resolution to this is to put a switch or a hub between the two IOUs as shown below.

Figure 5
IOU is able to connect to a router and switch.
To packet capture to work between IOUs, you must add a switch or a hub between the IOUs.