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Put tinfoil over your splice connectors and filters as they leak signals that totally confuse your modem. Never leave any bare wires, I tinfoil the entire modem to prevent the neighbors from hacking me. I don't use wireless, only CAT5 ethernet cable.
Follow this steps
1. Connect the provided power adapter from the gateway's POWER port to an electrical outlet. The POWER light on the front of the gateway should be green.
2. Connect the provided gray phone cable from the gateway's PHONE LINE port to the DSL filter jack
3. Connect the yellow Ethernet cable provided with the gateway from the LOCAL ETHERNET port on the gateway to your computer's Ethernet port
With your computer completely started, verify the POWER and ETHERNET indicator lights on the front of the 2Wire gateway are green. If they are not, see "Understanding the Indicator Lights" on page 15. The INTERNET indicator light will not turn green until the gateway software has been installed and an Internet connection has been established.
You might want to try disconnecting everything EXCEPT the power cord. If you still get the red power light (it should stay there forever) then bring the gateway to Radio Shack or somewhere they have a 5 volt DC @ 2 amp power supply and plug it in for 5 to 10 minutes and see if the power light then stays green. If it stays green then all you need is a new power supply! If not, then the gateway is fried. Mine keeps going from a solid green power light to a flashing green power light and I can hear a relay click every 2 minutes at which time a pop-up say "ethernet line disconnected". I tried new power supply etc. to no avail! It is fried after 1.5 years! No more 2wire for me!
Your computer sees its connection to the gateway - that's your "connected" - without being connected to the internet. First check that all cables are securely plugged in, especially the cable from the phone jack to the gateway device. You may need to cycle power on the gateway device to restore the DSL connection, and you may need to reboot the computer afterward to reconnect to the Internet (depending on your OS).
You can actually try accessing the interface of your gateway and put it on DMZ mode. That way it will open the ports on your gateway to ensure passage of all data from your gateway to all your computers even when the dsl is on. But make sure tat you have security software installed on all your computer workstations bec. putting your 2WIRE gateway on DMZ mode will expose your connection.