Putting the router into modem mode, would that null all other settings including firewall rules, NATTING, DynDNS etc. Why I am asking, can I remove the settings, (basically reset the router to factory defaults)
If you're talking about all those settings on the router/modem itself, yes, you'll have to recreate all that on m0n0wall. Those things on the modem are only meant for using the modem as your only firewall.
Also, I use a laptop as part of the internal LAN. I currently connect directly to the router via wireless (therefore bipassing the firewall and proxy) If I change my router to modem mode would I still be able to do this?
That's specific to your modem, your modem's documentation or its manufacturer will have to answer that. I would guess the answer is probably no.