You need to enable "Internet Connection Sharing" on the actual internet connection (modem connection) in the desktop PC. This will automatically configure the Local Area Connection with the fixed IP address 192.168.0.1 and Subnet Mask 255.255.255.0
The laptop's (Client PC's) Local Area Connection should be set to get its IP address automatically, which it does by DHCP from the desktop (Host PC).
To enable “Internet Connection Sharing” in Windows XP, open the Network Connections folder, right click the actual internet connection (modem connection), select Properties and then the Advanced tab. Tick the box “Allow other network users to connect through this computer’s Internet connection”.
Any firewall software will need to be configured to allow access to the networked computers and, in particular, if you have Zone Alarm in the *HOST* PC, its Internet Security Zone level must be reduced from High to Medium or ICS traffic will be blocked.