All,
Thanks a lot for your suggestions and tips. I have finally managed to configure the Linksys router to work with the MT882 modem. 
Below is the step by step configuration.
Thanks again to all, especially Prashanth, just4kix and essbebe for their suggestions!
Regards,
Praveen
Steps to configure BSNL Broadband SmartAX MT882 modem with Linksys Router WRT54GC
Configure the BSNL Broadband SmartAX MT882 modem
Note: To perform this, you can take help of BSNL broadband call centre folks (their number is 1800 424 1600).
1. Connect the MT882 modem to your computer/laptop using the ethernet cable.
2. Login to SmartAX MT882 configuration page 192.168.1.1 (username/password = admin).
3. Navigate to Home --> WAN Settings.
4. Set the WAN settings as below and click on Apply.
WAN Type PPP
Connection Type PPPoE
VPI/VCI 0/35
Encap. LLC
Default Route Enabled
PPP Username <your username>
PPP Password <your password>
Use DNS Enabled
Max Idle Time Always On
5. Navigate to HOME --> DHCP
6. Set the DHCP settings as below and click on Apply.
DHCP Server Enabled
Starting IP Address 192.168.1.2
Ending IP Address 192.168.1.33 (or whatever you wish to give, of course with 255)
Lease Time 1 Week (default)
7. Setup ADSL Settings by navigating to Advanced --> ADSL Settings and click on Apply.
ADSL Modulation Multimode
EC/FDM Mode EC
BitSwap Disabled
8. Once all the settings are done, the summary page must show green on both WAN and LAN channels.
Note: Ensure that you enable DHCP on your computer/laptop.
Configure the Linksys WRT54GC Router
9. Unplug the ethernet cable from the modem and plug it into the Linksys Router. leave the other end attached to the computer/laptop.
10. Connect to the Linksys router configuration page 192.168.1.1 (blank username and password admin).
11. In the "Basic Setup" page, change the router IP address as below and click on Save Settings:
Local IP Address: 192.168.1.100 (or any other value that you wish, of course ensure that it is outside the DHCP range specified above).
Subnet Mask : 255.255.255.0
12. Now, perform the Ethernet cable connections as below:
a. Connect the Ethernet cable from the modem to any one of the 4 ethernet cable ports (say 1) in the Linksys router.
b. Connect another Ethernet cable from port2 of the router to the computer/laptop.
c. Verify that the Ethernet ports 1 and 2 (or the connected ports) have green light on the Linksys router.
13. Connect to the changed configuration page 192.168.1.100 (blank username and password admin).
14. In the "Basic Setup" page, make the changes as below and click on Save Settings:
a. select Static IP for the Internet Connection Type.
b. Enter below values for the rest of the fields.
Internet IP Address 192.168.1.20 (must be within the DHCP range specified above)
Subnet Mask 255.255.255.0
Default Gateway 192.168.1.1 (The IP of the SmartAX MT882 modem)
Static DNS 1 192.168.1.1 (Same value as Default Gateway)
Static DNS 2 218.248.240.179 (This value is as provided by BSNL Broadband call centre folks)
c. In the DHCP Server Setting, choose "Disabled" for DHCP Server.
d. In the Time Settings, choose GMT +05:30 Chennai, Kolkata, Mumbai, New Delhi as the Time Zone.
15. Click on the Wireless tab and configure it as below:
a. In the Basic Wireless Settings tab, select/enter the below values and click on Save Settings.
Mode Mixed
Wireless Network Name (SSID) <Your Network SSID Name>
Wireless Channel 06
Wireless SSID Broadcast Enabled
b. Click on the Wireless Security tab and enter values as below and click on Save Settings.
Security Mode WPA Personal
Encryption TKIP
Passphrase <your_passphrase> (This is the passphrase used by wireless clients to connect)
Key renewal 3600 seconds (default)
c. Click on Wireless MAC Filter and enter the below values:
Access Restriction: Enabled
Then select "Permit PCs listed below to access the wireless network."
Enter the MAC Ids for granting them access to the wireless network.
16. Shutdown all the components in this order:
a. Linksys WRT54GC Router
b. SmartAX MT882 Modem
c. Computer
d. Laptop
17. Restart all the above components in the reverse order.
18. You should now be able to browse the internet in either your computer (wired) or your laptop (wireless).
Hope it is helpful to folks like me who struggled to set this up.