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If this is the first time you have connected your Xbox 360 to Xbox Live, you will probably be prompted to apply an update. If there are no updates, the Xbox Live Connection page shows that you're connected to Xbox Live. Press the Y button on your controller to continue.
If testing the Xbox it says DNS failed, then update your NETGEAR router firmware:
From your computer, open an Internet Browser and navigate to http://kb.netgear.com to download the firmware for your router.
Log in to your NETGEAR router by browsing to http://www.routerlogin.net or http://www.routerlogin.com. Enter the username (admin) and password. By default, the password is password or 1234 unless it has already been changed.
Click Router Upgrade on the top left pane under Maintenance, browse for the firmware downloaded and click Upload.
XBOX 360 generate lot of network errors ........ so don't worry,
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nice its really simple with windows xp im not sure about vista but what i did with windows xp is i would open the box for my networks i was connecting to the right click the local thats going into the xbox too computer and and click properties and click share internet connections and click share for all the things for local connection which is xbox to laptop and make sure it syays ur connected locally then u wanna go to the wireless connection right click and click properties and and advanced tab click share this connections with other hosts using this computer and if that works u should have xbox live for best xbox live speed u need atleast 3-4 bars if its smaller than that move ur laptop closer or u will have very slow reaction time
When you connect the laptop to the router are you using a network cable?
When you connect two computers such as your laptop and the xbox using a network cable you need a crossover cable not a standard network cable.
If you use a network hub you can connect two or more computers together using the standard network cables.
Ok, heres a list on what to do.
-With the console off, connect the adapter into the console via USB and clip it to the console with the clips provided.
-Power on the console and go to network settings.
-Find the section that says "find wireless networks"
-Select yours and test the xbox live connection
-FOR MORE HELP CALL 1-800-4MY-XBOX
wel your o2 router is basically ur internet so if that does not work i reccomend you switch to broadband and buy the wireless adaptor for the xbox 360 and use that if you dont no how to set that up send me an e-mail to email@example.com and i will walk you through it step by step till ur up and running AND PLZ RATE THIS FOR I WILL NEED YOUR VOTE TO CONTINUE HELPING OTHERS WIT THE SAME PROBLEM YOU ARE HAVING TANKS.