Connecting my mobile with Airport

I have set up an open network on my Mac and share the internet connection. This works fine with my iPod but now i have a new mobile (Sony Ericsson) with WIFI. It finds the network and connects but with a IP address starting with 169 so it will not connect to the internet. If the network is not open the phone asks me for a WEP key which i've given up trying to find.

It has only ever worked with one WIFI network so Sony say the phone is fine, but they also have no experience of Macs. Apple say because the iPod works the network is fine and my ISP Virgin say because the Mac is fine it is not their problem. I just can't get any help!

Is there something about my network that won't allow the phone to be recognised and give it a IP address it can use to contact the internet?

Thanks!