What kind of internet connection are we talking about? 56k or broadband?
Either way...you will probably want a router of some type in order to control the communication between the two computers. Not only that, but should you need to introduce another box into this network, it should go smoothly. If you are using a broadband connection, you can get a router/modem combo that will eliminate the need for ICS with the win2k box.
If you need help on setting up that network, there are a plethora of really good tutorials on the net. Just do a search. If you don't find anything, reply and someone will post one for you.
In regards to your question...
1) yes, you can do it. that's the point of a network.
in order to share files, make sure you have the "File and Printer Sharing for Microsoft Networks" protocol enabled. Under the properties for that protocol, check the appropriate boxes.
whatever lan game you plan on playing, just make sure you have the proper protocols installed. usually, that's tcp/ip or ipx/spx. typicallly it's a piece of cake..but there are alwasy exceptions.
If you're using a 56k connection and you have a valid TCP/IP network setup, the help file for ICS in Win2k should be all the information you need to get that up and working. If you're using broadband then the router/modem combo will take care of sharing the love.
2) I've always preferred tcp/ip for its ease of use. I'm not all that familiar with the netBEUI protocol...especially on a microsoft network. if security is that big a deal then read up on it and make the call yourself. never ever rely on the information of a friend in regards to anything computer related. if you don't understand it, don't do it until you do.
3) as long as the proper protocol is installed and setup properly, the game will use whatever one you tell it to (when given the option)
Hope that helps some!