The Billion 5100 is a modem with a 4 port router built in. Why would you think using knoppix as a "gateway" is going to improve anything? The router in the 5100 should be serving as the gateway just fine, and using knoppix as a gateway or proxy is likely to just slow things down (as well as causing other problems, like you entire network being dependent on the Knoppix box as well as on the 5100).

You should certainly be able to run an FTP server (although I don't think Knoppix includes an FTP server on the CD, just a client) or other server software. Im not sure that I would want to do this with Knoppix rather than Debain or some other distro intended for hd install though.