How to configure the Device Emulator so that it has Internet connectivity:
Note: This is written with the RTM version of Visual Studio 2005 in mind, but the procedures should be very similar for the standalone version of the Device Emulator or a beta of Visual Studio 2005.

The primary way to do this without downloading additional components is to use ActiveSync along with the Device Emulator Manager.  ActiveSync gives the ability to share the network connectivity of your desktop computer with any device connected through it.  

1- ActiveSync 4.0 is the latest version and you can get it from:
http://msdn.microsoft.com/mobility/windowsmobile/downloads/default.aspx
2- Once ActiveSync is installed, go into the Connection Settings, through the file menu and make sure that “Allow connections to one of the following:” is checked and that “DMA” is selected. 
This will enable ActiveSync to automatically find the Device Emulator when you virtually cradle it from the Device Emulator Manager.  Also, if you are connected to multiple networks, you will want to select the one ActiveSync should use in the “This computer is connected to” list.
3- Launch the Device Emulator Manager from the Tools menu of Visual Studio 2005 or directly from \program files\Microsoft Device Emulator\1.0\dvcemumanager.exe
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4- If the emulator that you want to use is not already started, you may do so now from the Device Emulator Manager, by selecting the “Connect” option.
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5- Once the emulator entry has the “Started” icon beside it, you can virtually cradle it using the “Cradle” option.  ActiveSync should now detect that a device was cradle and it should ask you about forming a partnership with this device.  Having a guest or a standard partnership does not affect the ability of the device to use the network connection, so hitting “Cancel” will work fine for our needs.  If ActiveSync has not reacted to the fact that the emulator has been cradle, the first thing you should try is to use the “Get Connected” wizard from ActiveSync.

You are now connected via ActiveSync. 

By default, ActiveSync should select the correct network, set the proxy and get network connectivity working from within your emulator.  However, the unlimited different network configuration makes it possible that some manual configuration work could be that needed.  The easiest test when configuring an emulator is to open Pocket Internet Explorer and try to access a public webpage like www.microsoft.com.  If the site loads up fine on a computer but doesn’t within the emulator, then you will need to tweak its configuration.  Here are most of the important options that can be done for each of the images you try to connect to a network. 

For Pocket Pc 2003:
 Switching the network type to “Work” instead of “The Internet”
  Start->Settings ->Connections->Network->Advanced->Work

 Set a proxy:
Start->Settings ->Connections->Network->Edit proxy settings
 
Smartphone 2003
 Select the network type:
  Start->Internet Explorer->Menu->Options->Connections->Select Network->Work
 Set a proxy:
  Start->Settings->Data Connections->Menu->Edit Connections->Proxy Connections->Menu->Add

Pocket Pc 2005
 All options should be set automatically. However, you can still set them manually:
 Switching the network type to “Work” instead of “The Internet”
  Start->Settings ->Connections->Network->Advanced->Work

 Set a proxy:
Start->Settings ->Connections->Network->Edit proxy settings

Smartphone 2005
 All options should be set automatically. However, you can still set them manually:
 Select the network type:
Start->Settings->Connections->Proxy->Menu->Advanced
*Note here that you can manually select “Pass through”
Select pass-through
 Set a proxy:
Start->Settings->Connections->Proxy->Menu->Add

One of the major issues that could block development when using the emulator is security.  The emulator should be considered as if it was a different machine than your desktop machine.  The first thing to verify before troubleshooting connectivity issues is to try to access the network resources from a different computer.  If that fails, then there are security restrictions on the network resources that will affect the connectivity from the emulator.

Feel free to post questions on the msdn forums in the device emulator questions about this blog or any other emulator related questions

Carl