There's no firewall in your modem. Have you made sure that the XP firewall is off & that PC Tools firewall is configured to allow LW?
You could have a look here on the PC Tools forum & see if any threads help...sorry but I can't find much info about configuring that firewall!
PC Tools Firewall Plus - PC Tools Community Forum

You could also try updating your Java to this version. Use the JRE offline installer & remove your current Java version before you install the new one.
Java SE Downloads - Previous Release - JDK 5

If that doesn't help, try changing LW's listening port to 64049 (or something in the range of 49152-65535). Tools > options > advanced > firewall config is where you have to go to change listening port. Apply to save a change.

Let us know if that's any help.