An update....
I have tried various fixes, following forum threads that I have found, and articles from microsoft help (eg winsock fix, TCP/IP protocol repair, Updated to SP2. I also installed a pci network card so I could connect direct to the router by CAT5 cable. This didn't make a difference.
The fix that HAS made a difference was from microsoft. Basically it blamed corrupted internet explorer index.dat files. I followed the instructions and have got some internet connectivity back.
What happens now is that, after a reboot, starting internet explorer will access google (my home page). From here, I can search and can follow links from the results. E.g. to amazon.co.uk etc. I can then follow links within sites. I cannot, however, access other sites by using the address bar. This amount of connectivity does not last, after 5-10 minutes, the browser returns to its old habits and will no longer follow links. A reboot starts the browser working again as above.
I still have no idea why all this is happening, It now looks like an IE issue, not to do with the wireless modem/router. If anyone has any ideas how to resolve this I would be eternally grateful!!