Oops...sorry. The two computers are connected by the big blue cable. First laptop is plugged into ADSL modem router via USB. The second laptop only has the blue cable. We have always run our desktop and one of the laptops like this, thus sharing the internet connection.

Can the two laptops share the internet connection wirelessly if the modem is not wireless? I can actually create a wireless connection between them but cannot share the internet.

I used the Network Connection wizard to create the network. This is fine on the XP...but there is no wired option on the Vista one.

I just had a look at that microsoft page (thanks LIH Prem) and it looks promising. I'll have a proper read & see if I can work it out.