Check here:
http://developers.de/blogs/damir_dobric/archive/2006/07/31/890.aspx
and
http://msdn.microsoft.com/en-us/library/ff648505.aspx
Transport seems to require HTTPS to encrypt credentials and throws an exception if there is no SSL. TransportCredentialOnly will send the credentials in plain text and unencrypted and is recommended for testing ONLY!
Good Luck!!