So, for your current configuration, you just need to turn PC 1 into a router.
1. Enable internet sharing on PC 1 so share the Internet from the USB Modem to it's Ethernet Port
OR
2. Bridge the USB Modem with the Ethernet Port so all the traffic from either connection is link

by the way, using the ethernet connection on the modem is still the best choice. In this case, you can try reset the modem to factory setting. Most of this modem can work in 2 mode
1. Router mode, should be the default, where there's a IP for it, and you can access the webbased configuration of it via a browser. You can try 192.168.0.1, 192.168.1.1, 10.0.0.1 or 10.0.0.2(mine is 10.0.0.2). Before you try that, you should make sure your own's ethernet's sub net is the same as the router's. Either that you can use teh DHCP so it will auto assign the IP to your PC
2. PPPoE mode, in this mode, the modem is simply a modem, same as per USB mode, the ethernet will not have any IP on it, and you need to use "Dial Up Connection" to make it work. Just add a dial up connection in the Network Connections, select "Connect to the Internet", then "Set up manually", then "Connect using a broadband.....", then just continue to key in those text boxes. Later, you should check that the "Phone Number" should be as per your ISP's VPI/VCI setting, which is "0,35" for my ISP.

If you can get PPPoE to work, then you can also connect to your router directly. Most router accept PPPoE modem as well, so you'll need to key in the login/password of your ISP in the router, not at the modem.

These might seems confusing. If you still have free time, you should try to make the ethernet work on the modem first, that will save you a lot of work. Plus, if you make PC 1 as a router, you need to keep it on all the time, :-p.

Well, good luck