No problems with XP home and networking.
Firstly I suggest you run the system unencrypted and get both m/c working on the network and then do the encryption thing. The other thing that confuses some people is the tick box that says something along the lines that other m/cs connect to the internet through this one, they don't if you are going through the router/adsl modem system.
Try pinging the router from the second mc by typing ping 192.168.0.1 into the run box and see if it responds.