Are you sure that the 2-wire model is 2701HG-00? There are lots of 2701HG models but I can't find that particular one.
Have you tried all of the fixes in this thread (click on link)?
If LW 4 Will Not Connect
After you deleted LW's preferences folder, did you have to go through LW's setup all over again? And did you have any trouble with replacing the gnutella.net file?
Do you have a dial up connection? The 2701HG looks like a broadband gateway.