Have you tried disabling the Windows XP firewall on both computers or at least, allowing the "File and Printer Sharing" Exception in the firewall? When I set up a network I disable ALL firewalls until I know that the connections are correct. After that, I enable the firewall and if there are problems, I know where to start. You should only be running ONE firewall on each machine and in fact, if the router has a firewall, you might consider running without it, IF you can't configure it to run correctly.

Here's how to allow the "Exception" on SP2. Open the Control Panel, then double click on the "Windows Firewall" icon. When that loads, click on the "Exception" tab, then place a check mark in the "File and Printer Sharing" icon which should be in that screen. If it's not there, then "Add" it.

HOpe this helps.