Win 7 & XP: sharing Internet and files

I want to share Internet connection and files on two computers: one with Win7 (main) other with XP SP3. The connection is splitted with a switch: http://www.ipix.lt/images/36682673.jpg
Everything is connected, I also tried configuring, (files sharing enabled, conection sharing also enabled) but still can't get Internet working on the second PC (on first it's working as it should) and can't share files and see computers on both.
What can I do? What exactly needs to be done to share Internet and files?

You cannot use a simple Network Switch to connect two computers simultaneously to the internet - you need to use a Router.

This is because every computer connected to the internet must have a unique IP address, but the ISP only allocates one IP address. This means that only the first computer to connect will get an IP address and get online. When you use a Router, it [the router] gets the single IP address and, in turn, allocates addresses to the computers connected to it, using one of the address ranges reserved for Local Area Networks, most commonly 192.168.x.x addresses. The Router then "routes" the internet traffic to the appropriate computer in the Local Area Network.

OK, I see that I need a router.
But with switch, it's possible to connect to internet on the same time just from one (doesn't matter which) computer? Or just from the main computer?

If both computers are connected to the network switch (which is also connected to the modem), the first one that you boot should get an IP address and get online. The second one will probably get a 169.254.x.x APIPA address (Automatic Private IP Addressing) allocated by Windows.

Having said that, with Cable Modems in the UK, when swapping the connection between computers, the Modem has to be switched off for several minutes so that it loses the association between the existing connection (recognised by the network adapter's MAC address) and the IP address it has allocated to it. A new connection is then found and a different IP address allocated. I don't know whether this will be relevant to your situation.

To go "wireless" does still require the use of a Router. That's the essential item that's preventing the original poster from connecting multiple computers to the internet simultaneously.

The alternative, of course, is to connect one (Host) PC to the internet and run "Internet Connection Sharing" to provide access to the second (Client) PC.