Don't use 2 software firewalls together, they'll interfere with each other rather than making you more secure
Choose 1, configure it to allow LW & disable the other. Check below for help with configuring, depending on which firewall you've chosen to use. First link for Panda, second link for XP firewall.

PortForward.com - Free Help Setting up Your Router or Firewall
Firewall setup

Did your connection start dying after you updated Java? Some people have had trouble with 1.6.0_01. Try this version instead. Use the offline installer & remove your current Java version before you install this one.
Java SE Downloads - Previous Release - JDK 5

What's the model number of your modem (have a look underneath as well)? Do you also have a router?