I use a router for mine, you have to forward specific ports to the machine for certain games, however most things just run straight over HTTP (Action Replay, CentralStation). There is no connection fee apart from the purchase price of the Network Adaptor itself. I don't see why you'd need to do anything special to connect it to a PC then the net, from what I saw (briefly skipped the section, wasn't relevant to me) you can do that quite easily, it's in the manual.
256k may serve you well, 512 is of course preferred, or higher, whatever your regional limit is. What the hell is 512/600? 128k upload is generally enough, you're not sending more than you're downloading.
Isn't the internal modem for the Xbox a dial up one? And the HDD is barely used. So meh.