Bwana,
The information your providing regarding your lan router is insufficient to help us get a good over view of your network.
Can you redo your diagram, but this time provide the subnet masks applied to each shown interface ?
Secondly, there seems to be a misconception in regards to NAT enabled routers sold in the market place.
When the vendor's specifications for the device mention up to "255" hosts, it dosen't mean that you can only use a Class C network address or any class with a subnetmask of 255.255.255.0 (which will give you 255 IP addresses).
The IP Address and subnetmask settings of your router are irrelevant to the amount of hosts it supports.
In fact, when they say a router supports upto "255" hosts, it means sessions, rather than individual hosts.
In plain english, this means that you can have upto 255 concurent sessions passing through the router and it will provide NAT translation services for each one of them, but if you try to pump more connections/sessions out of it, it will fail.
This limitation is a combination of the software its using and the total amount of memory the router has.
If you read the NAT topic that's covered here, you will learn that each NAT translation requires a specific amount of memory, around 160 bytes. In these 160 bytes, the router stores information about the particular session so when the reply comes back, it can match it with the original outgoing packet, reconstruct the reply packet and send it to the internal host that's expecting it.
Cheers,
