What's your (and your friends) setup? OS, installed version, etc.
A hosted server would not always show up in the lists as there are options to disable that (and you need to port-forward the specific ports, the one for the master server and the one for gametracking, maybe more). The command for connecting to any server would be better (to be used in the F10 console):
or with a port
As you said something about a Firewall you're using, did you try to disable it for once? Generally, you'll always to allow incoming/outcoming connections for an internet gateway. E.g. Win7/Vista will block these connections in general. And the ports should be configured as Remote and local ports.
I would suggest to setup your DHCP so you're always getting the same local IP for the PortForwarding of ports (e.g. like MAC based). In addition if you're trying to use a Listen server (the one who's hosting the server will play as well; differently to Dedicated server where it's only a server and no player), start the UT3 instance with "-log" (or use the "showlog" command in the F10 console) to see direct feedback of incoming and ending connections. At the time any client will try to connect to the server something you'll see something like this:
A brief explanation of all the steps you (and your friend) were doing would be helpful.
NetComeGo: Open TheWorld IP:PORT