You may want to use your browser to see what is going on in your adsl modem. Type into the Address bar: http://192.168.0.1
(I am concerned that you have made PC1 static IP instead of DHCP. There may be a DHCP server in the modem . Is the DHCP scope range from 192.168.0.2 to 192.168.0.254, subnet mask 255.255.255.0? Or should you turn it off and get DHCP from the network? Are you running PPPoE, PPPoA, or what? Who is your DSL provider and what brand and model modem are you using.
Look at MS KB article Q308006 at support.microsoft.com As you can see there are a lot of things that can screw you up.
You may have to try different things. If so, make notes for follow up.
I recommend this site: http://www.practicallynetworked.com/sharing/
Look at their XP ICS directions. "It is simple to setup ICS." They all say. That is true (as long as it works). If it does not work, it can be frustrating.