What type of internet connection do you have?  Cable, DSl, or dialup?  It sounds as though you are trying to use ICS (Internet Connection Sharing) with the desktop and I would discourage you not to do that.  Rather, get a router, if you have a broadband connection and connect the X-Box directly to the router.  Life will be much easier.

I have now gone down the wireless route and it works perfect, however I did connect for some months using a cable and had problems like you untill i switched off my firewalls and the xbox then made the connection. Internet onnection needs to be set up also.

James

YOu either need to get a router or start reading up on Internet Connection Sharing,  a router would be easier, however, you will need to come off that cable modem with an Ethernet connection to the router and to each device with an Ethernet connection.

thats how I had it set up too and it worked after switching zonealarm off and configuring the windows firewall to allow the connection and ICS.