When Windows Firewall (WinXP SP2) is enabled on your Host PC, it is enabled globally on all network interfaces. That includes your Host's LAN NIC. When you browse Proxy ON from your Client, it is trying to access the DIRECWAY Webcast Service (dpcproxy.exe) running on the Host. However, the firewall on the Host's LAN NIC won't allow the inbound traffic from the Client PC.
You have to poke a hole (open a port) in the Host's LAN NIC Firewall for the Proxy service. Go to Start => Settings => Control Panel and double-click Windows Firewall. Make sure Don't allow exceptions is not checked on the General Tab. Then, click the Advanced Tab, double-click on the Local Area Connection, and click the Add button on the Services Tab in the Advanced Settings Window. Fill out the info in the Service Settings Window as shown below and OK your way out. You can also use 192.168.0.1, port 83 (instead of port 85).
For more screenshots, see this forum thread: /forum/remark,12670906~mode=flat~days=9999
By Spinnaker and Satburn