On my phone it has a light and if someone hangs up it blinks red. And everytime when the internet disconnects me it does this and never before when I would disconnect myself would the light blink!
I was going to recommend you get a copy of hijackthis and post the log here.. that is utill I re-read the above....

Connect your Computer to annother wall socket..I am assuming that you have a wall socket in your room and not at the end of maze of extension leads and splitters and couplers .. The flashing Light (I suspect) flashes when the phone rings ..right? now why it didn't do this when you disconnected from your ISP before is strange..
Could someone else in the house be playing a joke on you?
HAve you Tried a new cable between the Modem and the Wall socket..
When you are on the phone .. do you hear clicks or pops. or a crackling noises?
We still need to check that something in your machine isn't causing it to disconnect.. so HJT is now recommended..

As for the PeoplePC prog.. there is no accounting for poor quality programming..

please not what I have just written has already been sujested.. I have just reworded..

Cheers