<<< under the 'LAN or high speed internet' section it kindly informs me that the network cable is unplugged >>>
When connecting two "computers" directly, Network Adapter to Network Adapter, it is essential that you use a *CROSSOVER* ethernet cable. Is that what you are using?
<<< in the network connections box, my broadband (BT) connection is described as dial up >>>
That isn't a problem, you have to enable "Internet Connection Sharing" on that connection.
To enable “Internet Connection Sharing” in Windows XP, open the Network Connections folder, right click the actual internet connection (modem connection), select Properties and then the Advanced tab. Tick the box “Allow other network users...etc”.