In regards to having two DHCP on the network, I'm not 100% when it comes to ICS. It's been at least 4 years since I last set one up with a crossover cable and I'm pretty sure I used bridged networks then so that it wouldn't be an issue. A DHCP device issues the ipadresses, on a basic home network DHCP is usually issued by the modem.
If you uncheck IPv6, open CMD prompt and
this should reset your network to your latest settings (i.e. no IPv6)
You said - "Youre saying I can leave the XP machine set to auto and only define IP's on mine?" Yes I am saying that.
You Said - "To be honest the IP setup confuses the hell out of me" - The only way to learn is to dive in... and sink... then swim.
You Said - "If both machines are set to auto, would that mean they're both trying to run DHCP servers?" - Only if you checked the 'Allow other users to connect through this computers internet connection' box. This should only be ticked on the NIC that connects to the network on your PC (not on any of the crossover cable NIC's). however I theorise that if your Modem is also issuing DHCP and your computer is issuing DHCP and they are issuing in the same address range and subnet, then there are two DHCP devices on the network (this theory would need to be tested though).
Also this might help you Gyre Technology - How to share a broadband internet connection