I could figure out the source of the problem. It was not with the firewall or SELinux. When I installed fedora 8 (the guest), I specified a gateway IP address where I don't have a gateway coz Im connected to Internet directly (not thru gateway). I had to remove the Gateway entry from host operating system coz that's where I connect to internet from. I still dont understand how come the entry appeared with host o/s when I actually specified gateway when I installed guest o/s.