On Windows XP, Connectify Hotspot cannot work with third party wireless network managers; you must use the Windows wireless manager, also known as Wireless Zero Configuration. Please remove or disable any third party wireless manager and reactivate the Windows native one.
A bit of history for the curious:
Back before Windows XP, Microsoft did not support wireless networks, just wired networks. As a result, every company making a wireless device (Intel PROSet, Linksys Wireless Manager, etc.) had to supply its own wireless manager. The wireless manager program set up the wireless parts: password, SSID, etc., and allowed Windows to operate as if it were on a wired network. A LAN was a LAN was a LAN to Windows.
Then XP came along, and Microsoft created their own interface for managing wireless networks. XP actually recognizes the difference between a plain old LAN and the specialized kind of LAN that is a Wireless LAN. But the other proprietary managers still existed, and Microsoft's manager was nice enough to get out of your way if you wanted to run the manager that came with your wireless card. Unfortunately, the third party managers just allow users to set up their wireless parameters. They actually hide the fact that the device is a Wireless LAN from Windows-- and from Connectify Hotspot. If you are running this software, Connectify Hotspot can't possibly know that you have a wireless network on your PC. These programs were old-fashioned in the early days of XP. Today, they are dinosaurs, and you owe it to yourself to grab the nearest comet you can find and clobber them. Or, better still, use the Windows Control Panel and just remove such software from your PC.
Once you have eliminated the old, you can bring on the new. Run the Windows Wireless Zero Configuration utility instead. You can Google for that, or check with your wireless card provider to learn how to configure Windows properly.