Scenario: you are running some proprietary VPN software under a Windows guest OS in VMware (e.g. Shiva/Intel NetExpress), and you want to share the connection back to the host OS (e.g. Linux) so that you can run native tools that access the VPN. I’ve used this to run the Linux Lotus Notes client to access my work email from home.

(The following assumes you already have the VPN connection successfully running and accessible in the guest.)

1. Configure NAT virtual networking for the guest’s primary network interface in VMware. Give it any IP address except a 192.168.0.x one.
2. In the Windows guest (I’m assuming XP here), install the Microsoft Loopback Adaptor (Add devices under Control Panels).
3. Configure Internet Connection Sharing (ICS) on the VPN interface, and share it with the loopback interface (not the LAN one). The loopback interface will automatically be configured with a 192.168.0.1 address (which is why you don’t want to share directly with the LAN interface, since the address change will break your networking and probably your VPN configuration).
4. Enable routing in the Windows guest; you may need to use a registry hack to do this in the Home edition of XP or W2K Professional (see Google).
5. In your host OS, add one or more network routes to the VPN-accessible subnet(s) via the guest LAN IP address (you may wish to ensure that the guest has a static IP assignment). Packets go to the guest IP and are routed in the guest via the loopback (where ICS performs NAT on the source IP) to the VPN interface, back out via the LAN interface, through your LAN and across the Internet to the remote VPN gateway and hence into the remote network.
6. If you wish to lookup addresses in particular DNS domains via name servers accessed via the VPN, configure a local (caching) name server with BIND forwarding zones for the domains in question.