hi there pal,
i am not a firewall expert..just trying to help..i am good with ipchains..you said that when you disable your firewall you are able to hook your win98 machine onto the net via the XP machine..well! now if i were in your place i would try looking at the firewall rules that would prevent connection from the other machine,or rules that would not allow NAT (network address translation), or rules that would prevent any connection to the proxy(if any) running on XP..i dont have far my reply has helped..all the best..your problem does not seem to be much of a problem...do let me know how things turned out..

hi there pal,
i am not a firewall expert..just trying to help..i am good with ipchains..you said that when you disable your firewall you are able to hook your win98 machine onto the net via the XP machine..well! now if i were in your place i would try looking at the firewall rules that would prevent connection from the other machine,or rules that would not allow NAT (network address translation), or rules that would prevent any connection to the proxy(if any) running on XP..i dont know how far my reply has helped..all the best..your problem does not seem to be much of a problem :-) ...do let me know how things turned out..