|My setup is a little closer to Setup 2 except that I am running WIndows Server 2008 and it want to run its own DHCP server.|
Ok, I've said it before, I'll say it one last time.................
If you only have one subnet, you want to use "Version 1" which is the "LAN port to LAN port" scenario for your setup. The ONLY reason you would want to use Version 2 is if you have more then one subnet and you need to route between them.
You really need to keep the "KISS" principle in mind when working in IT.
KISS = keep it simple stupid (not pointing this at you, it's what it stands for and in the IT business, you want to live by this credo)
By interconnecting your two routers going from a LAN port on the primary (the one connected directly to the internet) to the WAN port on the downstream router you overcomplicate a simple situation and it's no wonder you can't get it to work.
Without meaning to be rude..........stop it! Listen to me and connect the second (downstream) router as per Version 1 of my guide. Disable DHCP in the router via it's management interface. I've never seen one yet that you couldn't do that. Then you can either use DHCP from the primary router, or if you're prefer to use it on your DC, disable DHCP on the upstream router as well.
The ONLY router that needs to be configured to connect with PPoE is the one that connects to the internet. The other router, the downstream one, doesn't require anything fancy and if you do listen to me, you can have everything setup and working in less than 30 minutes. If you don't, well, I can't make you listen and I'm done talking. There's no point in telling someone the right way to do something if they're not going to listen.
It matters not how straight the gate,
How charged with punishments the scroll,
I am the master of my fate;
I am the captain of my soul.