Clueless Newbie,
Only the "modem setup" needs to be used to establish a ppp connection.
You may enter several DNS servers by adding a space inbetween them.. like
123.456.789.123 123.456.789.124 123.456.789.125
and so on..
There are actually two (my two isp's) DNS addresses on the machine as backup if the user doesn't enter their own. But, unfortunately, they are replaced if you do provide DNS servers. You might try reinstalling the image and leave the DNS servers blank.
If that doesn't work, you may want to use the "Root Terminal" to do some debugging.
After connecting from the "start" menu, about 10-15 seconds after the modem noises stop, type:
ifconfig
You should see two interfaces.. ppp0 and lo.. you should see the words "UP" and "RUNNING" in the block relating to ppp0. If you do then there is a ppp connection.
Now, try pinging your DNS server's ip address like:
ping 123.456.789.123
if you get anything you are on the net, so try this.
ping yahoo.com
now, if you get something you have working DNS.
Let us know how it goes. I'm in the IRC channel #ia1 on the server irc.openprojects.net a lot, maybe you can join us there.
Also, glad to hear that the games are a hit! 
Best of Luck,
Julio