I want to thank anyone who can help in advance for any advice they can give!
I'm running Ubuntu 10.04LTS BTW
I know most of what I need to do to set up my router but I am stuck at the point of /etc/network/interfaces. I am setting up the external NIC as DHCP as it will get an IP from the modem (192.168.254.254) it assigns 192.168.254.1. I am setting the internal NIC to static with the following settings IF THE ARE CORRECT:
auto eth1
iface eth1 inet static
address 192.168.1.2
netmask 255.255.252.0
network 192.168.1.0
broadcast 192.168.1.255
gateway ???.???.???.???

Now I currently have a Linksys router that is set to IP address 192.168.1.1. I would like to make my linux router the same address so I know I will need to change the 192.168.1.2 address when I do the hardware change over.

Now here is where I am confused. My Linksys is set as the DNS server, gateway and DHCP server. I don't know what to set as the gateway on the internal NIC (the one above with the question marks). If this box is going to be the gateway/router/DNS/firewall/etc for the network do I set the gateway for the internal NIC (eth1) to point to the address 192.168.1.1 (once I do the hardware change and set/change the Linux box static IP from 192.168.1.2 to 192.168.1.1) or do I set the gateway to the modem address?
I'm using this guide to set things up and it is pretty good but it is still a little unclear. http://www.jonathanmoeller.com/screed/?p=1669

Finally I want to make sure I have DHCP server setup properly before I make the switch (I guess I could just make my computers static if it doesn't work) What can I do to make sure it is setup and running. In Webmin I see this: http://images.tuprox.com/dhcp.jpg

I also don't know if this is all setup for DNS as well. This is the pic from webmin
http://images.tuprox.com/binddns.jpg
Is there a way to check to see if DNS and DHCP are going to work when I do the switchover?

I have seen a number of people doing this recently and being confused by the same thing..

The confusing part in this situation is what you call the "modem". These are usually modems, routers, dhcp/dns/firewall/etc as well. What this does, is effectively create a whole subnet (possibly multiple) that exists for no reason.

My preferred method, is to run the modem in "bridged" mode, assuming the modem supports it.
Bridging the modem will essentially make the modem simple maintain the hardware connection, and pass it on to the gateway machine, (i use gateway, since it serves many roles aside from router or firwall).

The gateway machine then creates a pppoe connection and authenticates it, with the ISP. Usually, this will create a new network interface "ppp0", or something similar, which uses the physical interface (eth0 in my case).

I find this to be the simplest way to set up a linux router/NAT/firewall/etc type machine.

According to the screenshot, there is no subnets defined, which would indicate that no, DHCP is not set up properly. Also, setting static IP's on anything other than a DHCP server itself, is a bad idea (IMHO), it is better to assign static DHCP leases to hosts you want to guarantee will get a persistent address.

The second screenshot means very little to me, what are you trying to use bind for? A caching nameserver? or to host your own domains?

You may find this link beneficial.
http://www.linuxhomenetworking.com/

A netmask of 255.255.252.0 is for a class B network (e.g. 172.16.0.0) and the broadcast address for 172.16.1.0/22 would be 172.16.3.255
You most likey intended to type 255.255.255.0. You don't need to specify a default gateway unless you have more complex routing on the inside network than usual.

You don't need to set up DNS unless you are hosting your own domain. Just configure DHCP to provide the ISPs DNS server IP addresses to clients.
With the Linksys router, you can use it as a switch and disable routing, DHCP and NAT on it. That is what I am doing - the linux box has only one internal interface and I need to connect a few computers.