Civilized,
Your post has a much more suitable home: the Networking message boards.
However, I will offer you some info here anyway.
There are many ways to network two PCs. You can use a crossover cable to direct-connect them OR you can purchase a router, switch, or hub for the network. It seems that most people tend to go with a router when setting up a network at home that also gives each PC internet access, whether it's wired or wireless.
From reading your post, I would gather that your friend has one computer that he wants networked with his laptop. Is that correct? And, YES, you can network PCs using Windows XP SP1.
For more good info, you ought to visit the Networking boards. Just click Boards Overview in the left-hand column of your browser window, then scroll down till you find Networking.
Under that section, I recommend these boards:
Communications, Network and Internet
Wireless
Gateways, Routers, and Firewalls