Alright, I just found out about this very recently on my quest to get a wireless adapter for my Xbox 360. You can use the wireless connection from your laptop as an internet connection for the 360. I'm putting this up because I had a lot of trouble with the DNS portion of this and no one has posted up the way that I found to do it, so here I go.

Supplies:
Laptop connected to internet
Xbox 360
Ethernet Cable (comes with Xbox, can use any other though)

1. First, have your xbox turned on. Also have your PC on, since this next part is all with the computer. This will probably work with a wired connection as well (but you could probably just hook straight up to your router or modem then), but here it is. First go to start and go into your control panel. Switch to classic view by using the link in the top left corner of the window. Find Network Connections and open it.

2. You should see a "Local Area Connection" (unconnected, this is for the connection to the Xbox) and your internet connection (mine is called "Wireless Network Connection"). Connect the ethernet cable to your laptop and to the back of the 360. Enable the "Local Area Connection". After it is completely connected, disable your internet connection, in my case "Wireless Network Connection". Once is it disable, right click the internet connection and click properties. Go to the Advanced tab and check off "Allow other network users to connect through this computer's internet connection." Allow this to finish, it may take a little bit. Once it is done, your internet connection should say shared next to the status of the connection.

3. Enable your internet connection. Once it is fully connected, right click the "Local Area Connection" and click repair. Allow that to finish. On your Xbox, find the system panel and navigate through it until you find "Test Connection to Xbox Live". Test the connection. If it works, congratulations, you don't need this next part. For some, at this point, they get a DNS error. There are a number of ways to fix this. None of them worked for me however (at least on the places I looked). So I found my own way. If my way doesn't work for you, then you can search in google for it and you should get a number of other troubleshooting tips.

4. You must have a connection to a router. If you have a wired connection to a modem, then I don't know what is the problem. In order to be able to navigate the internet again you need to disable the "Local Area Connection" and then repair the Internet Connection (follow steps above to enable everything again once you are done). Go to http://192.168.0.1 . You will be asked for a login. On most routers it is:
Username: admin
Password: (no password)

If this does not work, look up the login information for you router model. Once logged in, you must find where your DNS server IPs would be listed. I only have specific information for my router, so if you can't find it, look up where to find the IPs on your router model. My router is a D-Link DI-514. On the left side-bar, Wizard should be highlighted. On the top bar, click Status. Under WAN you should find DNS IPs. Manually input these into your Xbox (rather than have it find them automatically) and test your connection again. At this point it should be working. Any other errors can be search for online. I just felt that this specific one should be mentioned, because all the fixes available (AFAIK) did not work for me.

Hopefully this helps
I will be editing this with images to make it easier, and probably a more detailed section on where to look on the Xbox for the things I mentioned.

 

 

 

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MTU Problem
Internet Connection Sharing With Xbox 360 And A Laptop

I'm having problem connecting to XBOX live through direct connection from my laptop to my xbox using my wireless internet. Everytime I try to connect, it says MTU failed with the statu codes :
W: 000-000B
X: 0000-F001
Y: 0000-0000
Z: 0000-0000.
If you know what the problem is, please email me back...Thank you

-reply by Jason Lee

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Does it have to be connect to a laptop by any chance or can i use my pc?

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You can use any computer that has a wireless adapter and a ethernet connection

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By the Way
Internet Connection Sharing With Xbox 360 And A Laptop

Replying to DarkPsycho
Using a network bridge is a much more effective way to network your xbox. Using internet connection sharing will often result in a moderate or strict NAT which in turn gives you very little games to join in multiplayer games. Just look up a guide for bridging.

-reply by Zhumos

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THANK YOU SO MUCH... This is the best guide I could find and it worked PERFECTLY... Other use the bridge connections, which I always had problems with,b ut this works 100% of the time.

THANKS AGAIN

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I get DNS failure whenever i try to connect. IP gets confirmed so the does the first check.

My Ethernet cable goes into a Siemens router where the dsl(telephone) wire also goes. I don't know what to do.

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