Calm down FL, it's ok. The logon to Microsoft Networks dialogue box is your friend, it's not gonna hurt you.
You didn't say if you wanna share files of just death match or both, so lets set you up for both. Just get your Win9"Whatever you're using" CD and put it in the CD-ROM drive now.
First, lets check your configuration, K?
Right click Network Neibourhood and select Properties.
A big scarry looking box will open up that says "Network". There will be three tabs, "Configuration", Identifaction" and "Access Controll"
Under "Configuration" You'll see "The following network components are installed". In the window directly below you'll see all your network clients, ntwork adapters, network protocols and services.
A network client is software run on your computer that makes your computer aware it's on a network.
A network adapter is a network card or modem
A protocol is a common language all computers on a given network must be able to speak and understand if they are gonna be able to communicate with each other on that network.
A service is something your computer is providing to other computers on your network. "File and Printer sharing for Microsoft Networks" for example.
I don't think you're loging in to a server, just Peer to Peer (one workstation to another workstation) so the only "Client you'll need is "Client for Microsoft Networks". Remove any other Clients by highlighting them and clicking remove.
If you have a modem installed you should see "Dial up adapter", and your network card should be listed here as well.
For Protocols you should see "TCP/IP -> Dial-Up Adapter"
"TCP/IP -> "Your Network Card"
And so on, this means that your protocol (TCP/IP) is bound to your adapter and all is well. You may have other protocols listed here as well. NetBeui and IPX/SPX compatable protocol. If any of these are bound to your Dial Up Adapter (NetBeui -> Dial-Up Adapter) you should remove them by highlighting it and clicking remove. If they are bound to your Network card it's not a big deal, but you can remove NetBeui if you want.
Double click on "TCP/IP -> "Your Network Card" A new window opens up, and the tab says "IP Address. Click "Specify an IP Address"
In the feild IP Address enter 192.168.1.2, and in the feild Subnet Mask enter 255.255.255.0. Do the same for your friends computer but for his IP Address use 192.168.1."anything from 1 to 254 except 2".
Give him the same Subnet mask, 255.255.255.0. Click "OK".
Now click the "Add" button. Click "Service". Click File and Printer sharing for Microsoft networks". Click "OK"
Your TCP/IP is configured, now double click "Client for Microsoft Networks". The only thing that should be checked here is "Logon and restore network connections.
Now click on the tab at the top of the Network dialogue box that says "Identification". In the feild Computer name, well ... just be creative here, as long as it's unique on your network. You may want to limit it to 8 characters cuz NetBeui (NetBios) is old and crappy.
In the feild "Workgroup", again you can be creative if you like, just be sure you buddy's computer has the same info here.
Click "OK" , click "OK" again. Let Windows copy whatever its gotta copy and reboot. When you get to the Logon to Microsoft networks box, just put anything there. It doesn't matter.
Once you're back up, open your C: drive and create a folder, call it "Share" or something. Right click on it and select "Sharing". Select "Shared as". Click "OK" a little hand should appear holding the folder. Do the same to your friends computer. Restart and that's it, you're done. The shared folder is now visible on your network and you guys can transfer files to and from these folders. You'll have to go in through Network neighbour hood, but you can map a network drive to it from there.
I'mm asuming your physical layer stuff is set up right. You've got a hub and some RJ-45 cable, or some coaxial cable between the computers.