Tips for other folks with this problem:

solution to the svchost prob:

http://www.online-tech-tips.com/computer-tips/how-to-fix-svchostexe-errors-and-problems-with-high-cpu-usage/

For the large number of packets I was receiving:

go to Start
Control Panel
Ad/remove Programs
Ad/remove Windows Components
go to Network Services
Uncheck "Internet Gateway"
and finish by pressing OK.

http://forums.techguy.org/networking/696096-solved-windows-xp-internet-connection.html

Thank you guys for all the time and help. I'm glad we finally got over it!