Is there a activity log generated on Windows XP home edition for
network connections being created and deleted. If so where is it
located or is there another way to determine that type of activity?

Firewall software is used to filter and log network traffic. Window XP has
a built-in firewall.

This is an online tool to enable it:

http://protect.microsoft.com/security/protect/WSA/en/default.asp

This describes the logging capabilities of the Windows XP firewall:

http://www.microsoft.com/windowsxp/home/using/productdoc/en/default.asp?url=/windowsxp/home/using/productdoc/en/hnw_firewall_log_understanding.asp

There are also third-party firewalls, such as ZoneAlarm.

Free ZoneAlarm trial:

http://www.zonelabs.com/store/content/company/products/trial_zaFamily/trial_zaFamily.jsp;jsessionid=Bbhlawa6nz0RDeLAzCbo7Uq32ro3maPV4BSouxBsiijp2XcKceWS!-1572476644!-1062696904!7551!7552!989391009!-1062696905!7551!7552?lid=zassskulist_trial

Are you taking about connections made by machine to other machines on
the internet?

http://www.sysinternals.com/ntw2k/source/tcpview.shtml

I use this and find it very usefull. You can also see what ip address
they connect to and by which program etc...