Blast, I just typed out my whole response and lost it by clicking the wrong button. Heh. I am le uncoordinated.
So, basically, what I said was that I have no idea WHY you're having that problem, but I can think of a few things to try to fix it.
1) Drivers. Have you tried uninstalling / reinstalling drivers? You said the modem worked correctly, so I doubt it's that, but the LAN driver might be an issue. If you just uninstall it, perhaps it will let you use the modem.
2) Internet Connection Wizard. I actually don't know if XP Pro has this, but it should (I think most versions of Windows have it). Instead of trying to go through the Network Connections, if there's a separate wizard, you might try it. I've had random problems that I couldn't explain before that I just circumvented by using a wizard, so it's worth a shot. Unless of course you're already using it, in which case this was a useless couple of sentences.
3) Physically removing the ethernet port. If it's attached to your motherboard, I wouldn't recommend doing this (

), but if you have an ethernet PCI card, then you could try physically removing it. I can't say if this would help or not, but again it's worth a shot.
4) Try to figure out what program is using it. This probably should have been #1, but I was kind of thinking backwards after losing my other post. Anyhow, if something is trying to use your LAN connection, chances are it's trying to connect to the internet without telling you. And if it's trying to connect to the internet without telling you, chances are it's spyware of some sort. If you don't already have them, download and install Ad-Aware 6 and Spybot Search and Destroy (I think there's a sticky in this forum with links, but I'm too lazy to look right now). Run them and make sure your system is clean. If it is, and you're still getting the problem, it might be your email program, a P2P program, or a messaging program. Make sure to turn off the auto-email checker thing (if you have it running), and make sure you don't have any other programs that might be trying to access the internet running. If none of this works... I don't know what to say.
Again, I apologize for not being more informative, but like I said I can't think of anything that would CAUSE that specific problem (not being able to select the modem). I just hope you get it worked out. Good luck!