A router can only connect direct to the internet on a broadband/cable connection. To share a dial-up connection, go to Control Panel --> Network Connections, and look for your dialup connection. Then right-click on it, go to "Properties", then click on the Advanced tab, and under Internet Connection Sharing click the box to "Allow other network users to connect through this computer's internet connection". Click OK. Now, network your two computers together, using the Windows wizard if you wish. As long as the XP machine is connected to the internet, you should be able to also connect using the other machine (I think).

However, dialup is rather slow for one PC - trying to use the internet simultaneously on two PCs through it will cause both to load the internet at a snail's pace.

Hope this helps,
Adi