I too had the same problem a few days ago!
There shouldn't be a problem having eth1 go to your isp, just check /sbin/route to make sure that your routing table is set up right.
To get IP Forwarding to start working, you need to set up some rules in iptables that implement NAT. I grabbed the latest rc.firewall script from http://www.ecst.csuchico.edu/~dranch...masq/examples/
and it started working, now I am customizing that script for my network.
Let us know where that takes you.