OK so deleting your Preferences folder didn't do the trick!

Update your Java to MRJ 2.2.6 (& ignore what they say it's about OS 9.2.2! You can also use it in OS 9.1!) Restart the computer & rebuild the desktop file. This is healthy for the computer & should be done after installing any software & also at least monthly. To re-build the desktop: As soon as you select restart the comp., hold down both the apple & Option keys simultaneously until you see a message on the screen that says 'Do you wish to Rebuild the desktop', & you should click Yes or OK!

As far as your settings go:

Speed should be set to modem for a dial-up connection. Also tick Disable Ultrapeer Capabilities & press the Apply button.

Go to Tools>Options>Connections & untick connect at startup & press the Apply button. Now close LW.

Open LW & leave for some time (perhaps 15-20 mins), then go to LW's menu & select Connect. Let it try to connect for up to an hour.

By the way approx. how many (a) incomplete & (b) shared files do you have? If you have many, it can take LW considerable time to load them all & then to settle down after it tries to connect to each individual incomplete file. If you have over 1,000 shared files then may I suggest that just for the time being, you reduce that down to perhaps 1/10th of the number. Once we get you connected you can increase it again.