Thanks for your help. I will return to this in a week when I've got more time, but right now I'm just too busy. I caved in and gave him the windows CD's just to get some peace.
Well just to tidy this loose end up, it's all working properly now. The settings that gets the xbox connected are these firewall rules
iptables -A INPUT -i lo -j ACCEPT iptables -A OUTPUT -j ACCEPT iptables -F; iptables -t nat -F; iptables -t mangle -F iptables -t nat -A POSTROUTING -o ppp0 -j MASQUERADE iptables -A INPUT -m state --state ESTABLISHED,RELATED -j ACCEPT iptables -A INPUT -m state --state NEW -i ! ppp0 -j ACCEPT iptables -P INPUT DROP iptables -A FORWARD -i ppp0 -o ppp0 -j REJECT
and these routing commands
ifconfig eth1 192.168.1.1 netmask 255.255.255.0 && route add -host 255.255.255.255 dev ppp0 && echo 1 > /proc/sys/net/ipv4/ip_forward
I didn't need to run the dhcp server, on the xbox I set it's internet address as 192.168.1.2 with a netmask of 255.255.255.0 and 192.168.1.1 as the gateway.
I am so glad to be rid of Windows
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