There is an easier and cleaner way of doing.

What you need on host PC
1. WinXP or 98 [I remember doing it with 98 as well]
2. Two network adapters

Connect to the net on one adapter
Connect to the other computer via a cross over cable to the other computer
> If you use a hub, there is no need for a cross over cable.

Set up ICS on windows. Look here [url=http://www.annoyances.org/exec/show/ics]Annoyances.org - Setting up Internet Connection Sharing[/url]

There is no need of any complex HTTP/SOCKS proxy server and then setting up each s/w to use the server. Any software will work without any need to change the settings.

- Sid