I think it is possible as bsnl modem in our area is a modem+ router which also has the wireless connectivity. Also most of the colleges and offices are using this too. But bsnl has gives notification that password should be set for the wireless connection due to increasing no.of cybercrimes using these unprotected connections.
1- can be done.
BSNL gives you a ROuter, when you are getting the modem, choose the modem with the 4 ethernet ports, this will allow you to just plug in your computers via ethernet cabels into the Router and let the router do NAT,
2) i dont need to answer that
3) I dont think it is illegel
You can connect upto 4 computers via ethernet and n number of laptops using wireless. But the speed will be shared. I am currently using AirTel using which I connect 2 laptops using wifi and desktop using ethernet. The same logic can be applied for BSNL too.