Based on the picture it looks like I have version 1 of the router, this problem also happens to me at school and friends' houses though.
It's a tricky thing to explain but here goes. When I say my internet connection is up, I mean the router has the connection established, ie another computer can go online. I never lose connection to the wireless network (or local network when wired). When this problem occurs:
I am still connected to the local network
I am still able to talk on ventrilo, buffer streaming video, and download packets through bittorent (as long as any of these were started before the internet connection dropped).
I am not able to:
Connect to websites
Go online with most programs
If I open the network and sharing center there is a "map" on the top with 3 parts: This Computer, (my wireless network name), and Internet. These 3 icons (with text below) have 1 solid gray bar between each. When this problem occurs the left 2 have a solid gray bar between them but the one to internet has an X through it and the globe is faded black and white.
My guess is that windows determines whether I have internet or not by pinging a specific website. Once windows has established that I have an internet connection, it manages it such that programs that go online (like firefox) are directed towards the internet connection, and if there is none then windows does not let the process continue. The issue here is that I have an internet connection and the problem is this supposed ping is timing out due to clogged bandwidth. This is only my hypothesis.