I think you will find that IP address is actually the access IP for your router, it's how you get into the admin screen for the router itself.
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Default LAN IP is "192.168.1.254". Default password is "admin".
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You should be able to leave windows to itself as far as configuring the IP addresses for the computers, they should be set to automatically get the IP from the router. Can you check your Internet Explorer connection settings to make sure you are not specifying a proxy right now?