Your router is already issuing IPs to whomever wishes to connect. To configure your PC to also perform this function, causes the conflict you see. Answer, let the router do it's job.

As to security, most are safe with:

1) MAC addressing enabled and set to only allow those PCs you choose to connect.
2) SSID broadcasting turned off.
3) WEP or WPA security keys used (only used when the first two are not, or you are especially paranoid).

Use a firewall, I find XP's to be sufficient but some will use Zone Alarms freebee. Network sharing can become an issue if the firewalls are not configured to allow LAN traffic.