Combo modem/routers have been quite difficult to work with in my experience.
basically, all you need to do is assign a static IP to the WAG320N, connect the line from locked down router to one of the yellow ports on the WAG320N, disable the modem, disable DHCP, match the subnet, and set the locked down router's address as the gateway. These are the steps I have done quite a lot for converting a wireless router into a simple AP (though I've never done this to a combo DSL modem/router).
I have no idea what the settings in the WAG320N look like. if you could provide some screenshots, I might be able to help further, but those are the important settings. The proxies shouldn't cause a problem (I think) because the AP just passes the traffic (wireless or wired) to the locked down router.