I read over all this and other sites and have finally fixed this problem. Its not the firewall. Its not the homegroup. Its not anything on your XP machine. And its certainly not all those people that ask for your Service Pack level and amount of memory.
Get to the Network and Sharing Center / Change Homegroup options / Change Advanced Settings
You should be on a "home network" if you are behind a your cable/dsl router and sharing with other PCs in the home.
You will need to turn off passwords for your home network, if you normally don't use them. If you want passwords, you'll set them in the share diag (see next para).
You will need to click on a folder from windows explorer and chose properties, then sharing, then advanced. I found my 'users' folder and everthing in it is shared by default. I turned off sharing on that folder and used one at a lower level and share it to 'everyone'.
Finally, here's what will make XP network with 7. You need to go to your adapter (wireless or wired). From Network and Sharing Center, click on 'Change adapter Settings' on the left margin. Next, right-click and choose properties for the adapter you use. Click the sharing tab at the top, and then select the check box starting with "Allow other network users..". I also deselected the second box. The second one if for someone like IBM or HP to remotely access your PC for troubleshooting.