This sounds like two different problems to solve.
Problem 1 seems to be connecting to the network you've got set up. Now, I'm no expert and I'm sure there is someone here who knows a helluva lot more about this than me, but here's what I'd do.
First, I'd check the physical connection itself. Is the ethernet cable the right kind? Are the indicators lights on for both the network card and the hub? If you're still not sure you could test connectivity using ICMP and 'ping' the desktop with the laptop and vice versa.
Next, I'd double check the parameters under the network properties. I think, and again I'm no expert, that only 'file and print sharing' has to be turned on to connect to the network only. I don't think any of the other parameters matter, but I'd double check them anyway just to make sure that everything is simpatico. You can use the aforementioned 'wizard' to set the laptop to connect to just the network (it's under the "other" option) and that should set things right.
After all that, if it still doesn't work....well, I just don't know, but I'll certainly think about it.
As for sharing the Internet connection with ICS. I think the computers have to be directly connected for ICS to work right. Either the XP desktop has to sit between the hub and the modem and be a gateway for all or it has to sit between the laptop and the hub. I mean to say, I don't think you can use ICS through a hub. Although again, I'm no expert and I could be stunningly wrong.
That being said, since the XP desktop connects through the hub the easiest fix would be to slap another ethernet card into the desktop and connect the laptop to connect through it. Unless you have an alternative way for the XP desktop to connect directly through to the modem (for instance, my DSL modem has a USB connector)
I know that was long and probably won't solve the problem completely, but maybe something in there can serve as a jumping off point and direct you to the solution to your problem.
Hope it goes well and let us know when you fix it
