I've tried that, and I've tried manually loading the policy file with System.security.loadPolicyFile (not sure if this is needed, but I tried anyway).
I can connect to a server and send and receive data from the built-in player in Adobe Flash. When I run the swf movie locally in a standalone player, I get a security warning saying that the player has stopped a potentially unsafe operation, and the connection doesn't even return a failure (no onConnect event). But when I run it in a browser from a webserver, it at least attempts a connection (and the onConnect handler is called with a false success parameter).
EDIT: Demo Flash movie and source code available here
if it helps. I have the server running, but this movie (on the same machine and IP as the server) can't connect to it.