I've been reading this forum for the past three or four days, and nights. I couldn't get XP to connect to the internet either and I tried everything, literally. First I tried to use common sense and when that didn't work proceeded to bullet off and on all options in every possible array but nothing happened. I finally decided I might need a new modem. The one I used was about 5 years old and could only connect one computer at once and lost FTP-connections. My wife's MacBook (I've one too) would always connect immediately, whereas I had to use a VPN-connection and had to manually establish it. (She uses a different modem and provider) So I bought a wired Speedtouch (wired, because I use Airport to connect three machines), used the online manual of a good provider (not my own, I used www.xs4all.nl which is in Dutch but you can probably get it right by studying the pictures from "helpdesk"), invented nothing myself to install the modem, set-up a new location in Network (if you alter existing ones, sometimes settings aren't deleted even if you think they are), went for a TCP/IP-connection, used "via DHCP", renenewed the DHCP-lease and there it was. On all three Macs and on XP, through AirPort. Of course this solution will not solve every problem but I learned that I was making things much too complicated. An up-to-date modem (and more importantly: an up-to-date user interface!) did it for me.
Glad to hear it... I assume the airtouch is a regular dialup modem of some kind? I'm not familiar with it. One thing I think many of us are guilty of is we all assume everyone has DSL or Cable or some high speed internet. I know my own hints at how to get Parallels internet connections going have been slighted that direction because I rarely have to deal with dial up connections these days. Well glad you got things running. M