This a a scary process until hours of browsering on the internet and found the following solution that enables the internet sharing from a Mac to a PC:
To conclude the original question, i tried adding the WiFi network manually and had success with the following:

* set up standard 128-bit WEP-protected WiFi internet sharing on Mac
* on Windows go to Wireless Network Connection Properties/Wireless Networks
* add new WiFi network
* enter network name matching your Mac access point
* set Network Authentication: Shared
* set Data Encryption: WEP
* uncheck “The key is provided automatically” option and enter (and repeat) your 13 character password under “Network key”
* uncheck “Enable IEEE 802.1x authentication …” under Authentication tab

The key here is set the internet type to be “shared” and 128 bit encrypted.