DSL modem drops signal when transferring files on the homenet

After having a chat with the technician at my ISP he advised that I should have a router connected to DSL modem and my two home networked machines.

The homenet is a simple Windows workgroup with two nodes on Windows XP.

Lately I have noticed the dsl modem drop signal whenever I want to move a file from one networked machine to the other.

I tried re-installing a DLink four port switch which was used on the ISP's older single connection dsl modem to get more than one PC attached.

The problem persists but I may not have setup the Dlink correctly after much time has passed. Thinks work the same as they did without the switch connected.

With the switch connected I have one ethernet cable to the DSL modem and three ethernet connections (one is a spare for a test machine) connected to the switch.

How would a router be more effective and is there a budget one cheaper than this Trendnet :

http://www.superbiiz.com/detail.php?name=TN-S4W1CA

which seems to do the things I need including an option to port forward?