In other to share a folder you need to do the following:
My Network Places, Setup Home or Small Office Network, Next, Next, Yes, Next, type in Computer Name/Description, Next. Here is the key part. The workgroup name must be the same for both of your computers in order for you two to share stuff. Hit Next, then turn of File and Printer Sharing. Follow the last few steps and finish the wizard. I don't know the last couple by head. Once you have done that, when you want to share a folder all you have to do is right click and share.
I'm pretty sure in order for you to access his stuff and vice-versa both of the computers need to be on. If you have WMP11 you can also stream videos and music by going into options and enabling sharing.