Some points to bear in mind:
No firewall should stop the creation of a workgroup and the sharing of folders because that is part of the LAN, just as your shared internet connection is. If your firewalls are allowing the internet connection, then it is because they have allowed the LAN; they cannot see a distinction between those two things on a wifi network because the LAN is effectively the parent of functions such as file-sharing and internet connectivity.
All PCs must have the same workgroup name.
The parent folders of shared folders must not have privacy enabled. If C:\Documents and Settings\Joe Bloggs\ has privacy enabled in its properties, Joe Bloggs is not going to be able to share his files.
If WEP was interfering here, nothing would function correctly because, like firewalls, WEP controls the LAN itself.