No errors with NAT or DHCP, but can't ping server or access internet

Question

2 weeks ago my Xserve was positioned directly behind a modem and acted as the router to my small office - supplying DHCP, NAT, etc. Then, the Xserve lost it's connection to the internet. The Xserve was unable to pull an address from the modem (via DHCP) and troubleshooting the issue with my ISP resulted in getting my modem swapped.
My Xserve is still unable to pull an address via DHCP directly from the modem. So, I called apple support. The tech I spoke to was extremely helpful and instructed me to place the Xserve behind a router so it could use a static ip - without having to pay my ISP for one. So, I did as he instructed.
Regardless, since my Xserve originally lost connection to the internet I have been unable to get my Xserve to supply NAT to my internal network successfully. DHCP is working fine, the firewall isn't logging any refusals, NAT isn't returning errors. All internal network functions work, I just can't access the internet from any machine other than the server.
Here is the network port breakdown:
Ethernet 1 (wan)
ip: 192.168.1.2
sub: 255.255.255.0
router: 192.168.1.1 (router supplying static ip)
dns: 208.67.222.222,208.67.220.220 (opendns)
Ethernet 2 (lan)
ip: 192.168.1.3
sub: 255.255.255.0
router: 192.168.1.3
DHCP settings:
start ip: 192.168.1.4
end ip: 192.168.1.254
sub: 255.255.255.0
interface: en1
router: 192.168.1.3
Firewall:
Allow all traffic from "any"
NAT:
IP Forwarding and Network Address Translation
External network interface: Ethernet 1
NAT Port Mapping Protocol enabled.
Other notes: I can see the Xserve from any device on the network (in Finder running OS X) but I cannot ping it via the router's ip. (example: ping 192.168.1.3) 100% packet loss.
The Xserve does have access to the internet.
The Xserve leases an ip to the devices on the network, but cannot ping them using their leased ip address.
Initially, I was receiving the following error:
"xserve subnets: create failed, Invalid/missing 'net_address' property
So I modified bootpd.plist by adding:
<key>net_address</key>
<string>192.168.1.0</string>
I no longer receive the error and DHCP works properly.
Any help is thoroughly appreciated as this issue has set me back over a week in troubleshooting.

Answer 1

Thanks again.
I'll try to be more clear about my current setup:
Modem
->
Router
DHCP enabled but supplying server with static ip of: 192.168.1.2 - hence my Ethernet 1 settings on my Xserve. The DHCP address the router supplies to other devices range between 192.168.1.101 - 192.168.1.150 (this is temporary). I'm using the Router as a temporary network connection for devices as I continue to setup the server. Once the server is completed, I will hook everyone up through the switch.
->
Xserve
The Xserve receives a static IP from the router above (192.168.1.2) even though the router gives DHCP addresses to other devices. The Xserve then goes out Ethernet 2 to (which has also been assigned a static internal address: 192.168.1.3) a switch.
->
Switch
The Switch definitely has DHCP disabled, and merely extends the network connection.
Right now, the Xserve is doing nothing other than attempting to supply an internet connection to devices attached to it. I performed a clean install after a day or two of troubleshooting.
I really want to be able to control content access as well as give certain devices priority over others using the Xserve. I want it to control... the network, in all aspects: DNS, Open Directory (Master), Firewall etc. Am I still able to control the network with the Xserve if it is hooked up side by side to the clients without reconfiguring my router to hop through the Xserve before going to the internet? If not, why not just use the Xserve as a middle man as I currently do?
What are the benefits of using it side by side to the clients? What are the drawbacks of my current setup? (Other than it not functioning)