Ok first of all I will clarify what I think you are trying to do...
You have a dialup / adsl modem connected to your computer (Ubuntu 7.10, lets call it server), and the internet works on that machine only. From the ethernet port of server you have connected a wireless router. From the wireless router you connect all other computers, (we shall call them clients), without wires of course .
Now in order to get your clients to connected to the internet you need a firewall and network address translation,(NAT), we shall use the DHCP server on server for address allocation and DNS address of your ISP for the whole network.
First of all lets deal with the firewall and NAT...
First make sure you have iptables installed then go to http://www.easyfwgen.morizot.net/gen/
and fill in all the values as required this will generate the iptables config script. Copy and paste the script into a file called share_net.sh.
Now sudo into root in a terminal and copy share_net.sh to /usr/local/bin/ and make it executable by chmod +x /usr/local/bin/share_net.sh
Edit /etc/rc.local and add the line /usr/local/bin/share_net.sh so it executes every time the server boots.
Configure your internet connection (if not already done), and then add the line ifup ppp0 (or whatever your internet interface is, this can be found by typing ifconfig -a in the root terminal), to rc.local just above the share_net.sh line. This will suspend booting of the server until ifup returns.
Now for the DHCP server. Make sure you have the dhcp server installed (apt-get install dhcpd), now what I did was follow this HOWTO --> http://www.tldp.org/HOWTO/DHCP/index.html
to get the DHCP server up and going.
Good luck and happy Linuxing