Thanks RomeoTango...
First of all the 172.16.0.0/176.31.255.255 block works fine - I think the main problem was that there was something wrong with the network protocols on M2 - I tried clearing out TCP/IP with netsh int ip reset resetlog but no joy - only after reinstalling XP did it work and it worked instantly.
Now a question - according to one source if you have File and Print Sharing bound to TCP/IP on the same subnet that also connects to the Internet that means that any one can browse your shares from the outside - seems logical to my amateur brain - M$ themselves advise against such a setup as insecure. But if you unbind F&PS from TCP/IP then you can't browse your local network.
So one suggestion is unbind File and Print sharing from TCP/IP and install a local protocol like IPX/SPX (or NetBEUI) and bind F&PS to that. This is said to be secure.
I'm stating to realise that networking is horribly complicated.....not sure that I'm smart enough to fathom all it's mysteries
Apologies to the Towers for introducing such an arcane subject, but I've known several ordinary Joe's like me who've tried to get their home networks going with the Internet and gotten themselves in quite a tangle once routers and DSL connections start to come into it. Even Windows native Internet Connection Sharing can be tricky if it doesn't work first time (as I know to my cost in the past). I promise I'll take my questions on the more abstruse aspects of networking to a more approprite Forum in future!
Finally, thanks RTFM for explaining about broadcasts not crossing routed-network boundaries - silly of me not to have realised that.
PS: I think FreeSCO is very much worth having a look at - it really is extremely clever. How they manage to pack so much functionality into a boot stiffy is quite amazing.
PPS: Do I still need Zone Alarm if FreeSCO has it's own firewall?