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I assume you have a main splitter somewhere that splits off the connection with one line directly to your modem and the other to your internal phone wiring? If you don't that usually is how they should be done to avoid noise issues. If yours is done this way, you could possibly have a bad splitter there.
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Is this a physical device on one of the jacks, or something in the internal wiring of the line that we might not be able to see?
No security system on the house, the direct TV tuners downstairs are not hooked into a phone line, my HD-DVR up here is, but was connected properly through a filter. Unplugging that one didn't help either way.
Its a house, 50+ years old, maybe 70+, my parents bought it in 1973(not that that is relevant heh).
No fax. The cordless phone system is 2.4 GHZ, but (see below) I don't believe the wireless router/interference could be the culprit.
I just used the wired PC to bypass the router and plug straight into the DSL Modem, and the problem is the same, so that would seem to eliminate any possible router issues/interference.
Thanks for all the info/suggestions so far.