The usual way to turn a wireless router/gateway into an access point is to _not_ use the WAN/Internet port and instead connect the device to your network using one of its LAN ports. That bypasses the network address translation (NAT) that occurs between the WAN port and the WLAN/LAN interfaces. Also, if you have something else providing DHCP, you should disable the MN500's DHCP server (if it has one).
The main problem with the MN500 is it's so old (going by the lack of documentation available for it on microsoft.com) that it probably doesn't support WPA2 so your data and network are not secure. Connecting it like that also bypasses the firewall between the WAN and WLAN/LAN, but presumably you will be replacing that function with a newer router so that shouldn't be as much of a concern. Lack of secure wireless is, though... unless you're not in an urban area and/or the rooms' walls shield the signal from getting outside. It's not in the supported hardware list of DD-WRT, so you probably can't add WPA2 to it like that, either.
