Modem and router are irrelevant, but continue.
Yes, I pointed that out earlier in this thread. That's what ultimately prompted me to generate traffic and then disconnect the modem's coax, revealing that router-to-modem traffic was indeed hitting the ISP's gateway. Note that routers can be configured NOT to decrement the TTL, thereby becoming invisible to traceroute. That's what's happening here.
You can test it yourself like I did, or if you have a hub you can insert it between the router and modem and watch the outgoing 'modem' traffic. You'll see that it's destined for the default gateway, not the modem. It's the default gateway that either forwards the traffic back to the modem or drops it. (Until you configure a static route, of course.)
It looks like standard IP behavior to me.