I would disregard the "does not exist" and the message that sqlnet.ora could not be located for now. Looking at the code for Toad's connection error advice it could use a little tweaking when you're using direct connect like that.
The ORA-12170 error is what I would focus on. Did you try tnsping? It seems that there is a problem getting to the database. Can you connect with SQL*Plus?
Michael