Modem only dials when phone is off hook

[JAKAFUTZ]

I have a Presario 5000 (model 5080US). I just had to replace the hard drive and restore the system SW (Windows ME). When I try to dial out to AOL, I get a message back that there is no dial tone. With a phone connected to the "to phone" connection on the modem and I lift the hand set and then try to connect, it dials just fine. Hang up the phone, and I get the no dial tone message. Same thing happens if I use hyperterminal and try to dial my cell phone...works fine with the hand set off the hook. I have the "wait for dial tone" turned off in the modem settings.

Any ideas on why this is happening?