At the moment both network adapters are set to get their IP address automatically, but there is no DHCP server from which to get them. Windows has therefore allocated default APIPA (Automatic Private IP Addressing) addresses in the 169.254 range which won't let you internet share and usually won't let you access shared files either.
If your laptop is connected to the internet with a Wireless connection, you need to enable "Internet Connection Sharing" on *that* connection in the Network Connections folder.
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...etc”.
When you enable "ICS", your Local Area Connection will automaticlly be configured with the fixed IP address 192.168.0.1 and subnet mask 255.255.255.0. It is important that this is done as part of the ICS setup, rather than you entering the address manually. This process also enables the "Host" PC as a DHCP server to allocate the addresses to the "Client" PC, which should get an address in the same 192.168.0.xxx range.
If you are running software firewalls, the IP addresses of the networked PCs must be put into its "trusted" area to allow them to communicate with one another. Also, if you run the Zone Alarm firewall in your “host” PC, the Internet Zone Security level must be reduced from High to Medium or “ICS” traffic will be blocked.