rsync: error starting client-server protocol

I believe the uid and gid parameters in the server config file are for privilege separation.

The auth users parameter in your config explicitly denies all other usernames than "backuppc".

So, you need "backuppc" in the rsyncd.secrets on "Host1", as well as on the command line on "Host2".

Try removing the auth users statement from /etc/rsyncd.conf, or double-check that you are indeed user backuppc on Host2 (not "user" or "username", as in the example "From host2:").

When troubleshooting, also try adding strict modes = false to your rsyncd config file.