I have setup a full virtual network on one pc using UML (user mode linux)
http://user-mode-linux.sourceforge.net/
it allows you to rub a FULL vitrual linux box on a linux box.
I have had 3 running and talking to one another and the outside world. I have also ran a uml and had a firend login to it using ssh from the internet with no problems.
its worth a look.
easy install is
download precompiled uml kernel.
download prebuild root_fs
run
./linux ubd0=root_fs
that should get you running in 10 mins.