I had this problem with XP on LAN connection showing "limited or no connectivity". Was a tricky one to solve. But in the end, problem was fixed when -
(1) I disabled "automatic IP" assignment in TCP/IP properties and instead made up static IPs numbers for the specific computers I wanted to LAN together (I belieive this action equates to disabling DHCP server option).
(2) Ensured that NetBIOS over TCP/IP was selected in TCP/IP properties for the LAN connection on each machine.
(3) Re-boot.
This fixed the problem, allowing me to LAN XP and Windows 2000 machines together, so long as the firewalls were configured to permit LAN traffic.
Hope this might help someone who is as stuck now as I was!