i used to have the same setup,
pc1 on xp with cable internet connection
pc2 on win98 with printer
Was a bloody pain getting both file sharing and ICS to work, no one thing would get it to work just hours of tweaking and rebooting. Decided to put xp on pc2 and seems to be more reliable.
Are you trying to print in word? I used to have a problem with that over the network but that was a bug with office.