Well first off your watchgaurd will need a IP address also,  make sure that DHCP is turned on in your SMC cable modem.
 You can also test this by removing the watchgaurd and connect your pc directly to the SMC modem and see if the PC is getting an IP from it.
 It sounds like the watchgaurd is not being assigned and IP address or does not have a gateway to connect to.

Ok, my SMC is giving out IP addresses.  A lot slower than I would have expected, but my laptop does get an IP address after a bit.  I have the External interface set for DHCP, though I'm not sure if that's correct.

If the SMC is taking more then 30 secs to issue and IP address this might cause the WatchGuard give up on getting and IP address from the SMC.

You might want to change the IP Address Assignment to client or relay and see if that helps also.

Since I can make this change on each port on the XTM, should they all be set to DHCP or just the external?  Do ports 1 - 5 need IP addresses if I'm just going to use them as switch ports?

 The XTM is handing out IP's already by what I can tell.    What we need is to make sure the XTM is getting 1 IP address from the SMC, which will be the default gateway for all the computer connected to the XTM.

 Only 1-5 need DHCP the external should not be set as a DHCP server, we need to retrieve an IP from the SMC.

Ok, I can get to the internet if I put in static IP information.  I can't get DHCP from the router if I go thru the Firebox.

What I have right now is

Port 0 = external - dhcp - connected to SMC router.
Port 1 = trusted - 10.1.10.2  (when I have my laptop plugged into this port, I can get to the internet, if I plug the main switch into this port, I can't get to the internet).
Port 2 = ?  ( i don't know what to set this port to so that I can have my WAP connect to the internet)

Also, I can only access the internet if I give a static IP address to my laptop and use the DNS of 8.8.8.8

Ok what port do you have the main cable (From the SMC router to the XTM) plugged into when looking at the image below.




xtm2w-lt-rear-lrg.jpg

The main cable is plugged into the first port on the left.  My laptop is plugged into the port next to that and the WAP is in the port next to that.

Ok so your WAP device is not working correctly?

Set port 2 identically to port 1 setup and see if that works.  

I can do that, but when it wants an IP address, I can't put in the next logical address (10.1.10.3).  It complains that it's on the same network as port 1.

I've done that.  What type of interface should I set it to?  I can choose...

External
Trusted
Optional
Disabled
Bridge
VLAN

Port 2 currently set to External which is how Port 0 is setup.  Port 1 required an IP address based on what the guy at Watchguard said..  When I set Port 2 to Trusted and use DHCP relay, it asks for the IP addresses of other interfaces that use the DHCP.  I gave it the IP address of Port 1, but it complained that it was on the same network as Port 1.

Oh, I just discovered Drop-in mode.  That will work better for me.  It will setup all the ports to use the same IP address to get out to the internet.  I just need help configuring that now.

I ran into the same issue & found if you want to use Ports 1-5 on a single Local "Trusted" Network you must put all the ports into a bridge. The easiest way to do this is to use the Watchguard System Manager & not the web Interface. Using the System Manager under Tools - Policy Manger - Under the Network Menu - Configuration. Set the trusted interface to an ip outside of the internal network you want to use. Go under the bridge tab & create a new bridge with the correct internal "Trusted" network information including DHCP server info. Change all internal ports (1-5) to bridge and select the newly configured bridge for each interface. Save to the firebox and your finished Bridge.png