how is all the data stuck on layer 2. He is sending data to the outside world, which means that it is going to try to hit the routing table. Bryan, I know that you know your shit, and I have made this situation work once to get a better wireless signal with a router I had laying around, but it takes a lot of configuration, and in the end, it never stays fully working for long.
In concept, it should work just fine, but linksys products are far from spectacular. A plain old switch would be MUCH easier than co-ersing a shitty router into ignoring all routing requests.