SBS 2008 as proxy server

2008 only accepts on NIC, so you can't do that.

In your server:

NIC1  - connect to internet.  you need the IP, subnet mask, default gateway and DNS
NIC2 - LAN side.  you need the IP, subnet mask and DNS.  leave the default gateway empty

PC computers:  main thing is your Default gateway setting is set to the LAN IP of your server (NIC2)

I assume you already have some ProxyFirewall  type of software installed on your Server?

I didn't know the limitation on SBS 2008.

http://technet.microsoft.com/en-us/sbs/cc817589.aspx

that webpage suggests if you have the Premium Edition it supports multiple NICs

SBS 2008 - the server running "Small Business Server" does not appropriately support two network adapters.  A quote from the link chakko provided:Does Windows Small Business Server 2008 support two network cards? One NIC is recommended and supported on the Standard Edition server. If you have more than one NIC on the first server, then when the network wizards are run the additional NICs are disabled. Multiple NICs are an advanced scenario; if you want to use multiple NICs you should do so on the Premium Edition server.To be clear, the NON-SBS server (the "Standard" server that is included in SBS) is what is being suggested here.You really should be getting an appropriate firewall/router.

I am using standard edition. both the nics are intalled and working. earlier versions of sbs had proxy software built in, has this changed?

Yes, this HAS changed.  It is no longer the recommended configuration (and I don't believe it's supported either).

There is a firewall/router installed. The reason for this scenario is to monitor internet usage...... is there a better way?

Thanks. Another Microsoft "improvement" I will have to live with.