Router not forwarding subnet

Forgive a bit of a noob question, but this is the first time I've needed to subnet and it hasn't been the piece of cake I expected.

I have a new machine onto which I am slowly migrating my data and apps from the old machine (it's boring and I'm lazy). The 10Mbit link on the old machine is too slow so I set up a Firewire link.

The old machine sits on subnet 192.168.1.0/24; new machine on 192.168.0.0/24 (with the rest of the network).

OLD machine:
Network Destination Netmask Gateway Interface Metric
0.0.0.0 0.0.0.0 192.168.1.7 192.168.1.2 1
127.0.0.0 255.0.0.0 127.0.0.1 127.0.0.1 1
192.168.1.0 255.255.255.0 192.168.1.2 192.168.1.2 1
192.168.1.2 255.255.255.255 127.0.0.1 127.0.0.1 1
192.168.1.255 255.255.255.255 192.168.1.2 192.168.1.2 1
224.0.0.0 224.0.0.0 192.168.1.2 192.168.1.2 1
255.255.255.255 255.255.255.255 192.168.1.2 192.168.1.2 1

NEW machine:
0.0.0.0 0.0.0.0 192.168.0.5 192.168.0.7 1
127.0.0.0 255.0.0.0 127.0.0.1 127.0.0.1 1
192.168.0.0 255.255.255.0 192.168.0.7 192.168.0.7 1
192.168.0.7 255.255.255.255 127.0.0.1 127.0.0.1 1
192.168.0.255 255.255.255.255 192.168.0.7 192.168.0.7 1
192.168.1.0 255.255.255.0 192.168.1.7 192.168.1.7 1
192.168.1.7 255.255.255.255 127.0.0.1 127.0.0.1 1
192.168.1.255 255.255.255.255 192.168.1.7 192.168.1.7 1
224.0.0.0 224.0.0.0 192.168.0.7 192.168.0.7 1
224.0.0.0 224.0.0.0 192.168.1.7 192.168.1.7 1
255.255.255.255 255.255.255.255 192.168.1.7 192.168.1.7 1

ROUTER machine:
Destination Gateway Genmask Flags Metric Ref Use Iface
xxx.xxx.xxx.xxx 0.0.0.0 255.255.255.252 U 0 0 0 eth1
192.168.1.0 192.168.0.7 255.255.255.0 UG 0 0 0 eth0
192.168.0.0 0.0.0.0 255.255.255.0 U 0 0 0 eth0
0.0.0.0 yyy.yyy.yyy.yyy 0.0.0.0 UG 0 0 0 eth1
0.0.0.0 192.168.0.5 0.0.0.0 UG 0 0 0 eth0

NEW has IP forwarding enabled.
ROUTER is default gateway and NAT for all other machines on network to Internet.

Ping ok from Old to New (both subnets)
Ping ok from New to Old
Ping ok from Old to Router
Ping ok from Router to Old
Ping ok from New to ~Internet~

So here is my problem. I can't reach OLD from anywhere else in the network without setting up a route on each host! For example, a traceroute from 192.168.0.99 (laptop) to OLD gets to 192.168.0.5 (the router) and then hangs, it doesn't make the next hop to 192.168.0.7 (NEW).

I assumed that the router, being both the default gateway for the LAN and having a static route for the Firewire subnet, would be enough to get 100% visibility. Obviously I'm missing something fundamental, please take pity on me.

Regards,
Mathew.


PS. Just an interesting fact I discovered and unrelated to my problem, but before I set up the route to the new subnet on the router, a traceroute from the router to OLD actually made it quite a few hops all the way to Sydney (from Melbourne) inside TPG's network! I was quite surprised, I thought private packets would be dropped the moment they hit the ISP end of my link.