My parent’s have their ONT inside a basement cabinet, where all the house ethernet cables terminate. One of those cables runs up to their office, where the main Wi-Fi router is located (Plume homepod provided by their ISP).
Could they setup their network similar to what’s shown in the diagram where the WAN and LAN traffic passes through the same ethernet cable? If so, are there any specific network settings that should be enabled to prevent any issues?
Yes, with VLANs and managed switches. But if you don’t already have managed switches, you’d have to replace both of them. By far the cheapest solution is to put a small wired router (e.g. I’ve owned a TPLINK ER605 that would work, performing routing and DHCP) between the ONT and SW1, and then reconfigure the WiFi-Router to turn off the router and DHCP functions, leaving the internal switch functional and allowing the WiFi to serve as an Access Point.