Ok here is the deal.

I have cable Intenet. Currently i have a Lynksys router (4port with wireless)
Between me, my parents, and siblings i have 4 computers already hooked up via hard wire. All of the ports are full.

What i want to do:

Everynow and again a few of my friends and i like to come over to my house and have a mini "lan party" (about five of us not including myself)
So i want to be able to game through our network at home and us all have internet connection. Also it is a must that i can set up file sharing Do i need to set up a computer as a server of some type (i have an "extra" computer)

One way is to buy a switch. You can manually assign ip addresses to each computer you intend to hook up to the switch such as 192.168.1.XXX, xxx being 105 to 200 for instance. You should then all be able to "SEE" each other on the lan.

Have fun

Will your friends be wireless or wired clients? I presume they will be bringing notebooks over to your place. If the notebooks have wireless capability you can easily enable them to use your router and share your cable modem. Most routers can handle between 64 to 255 wireless connections (check the specs on yours). You shouldn't need a server. A basic peer-to-peer network should get the job done.

If some, or all, of your friends have to plug in to a wired port you'll need to add a ethernet hub because your four ports are already spoken for (about $15 to $25 for a 5 port model, more for an 8 port). The hub will enable you to expand the 4 wired ports on your router. Simply plug the hub into one of the 4 ports on the router, usually via what is called an uplink port. The computers then plug into the hub. Most hubs can also be daisy chained together to expand the network further (i.e. router ---> hub1 ---> hub2, etc.).

Make sure that all of your client computers are set up for peer-to-peer networking and have the same workgroup name so you each computer can grant file sharing to appropriate folders.