It boggles my mind how so many people are quick to judge a kid still living at home with his parents, whose only means of entertainment are online games and chatting. It's none of your business why that's all he has (not that it's hard to guess at least a few plausible reasons), if he wants to share this with MMO community he will in his own time and way. Not that I'd advise it.
To the OP - I'm glad you talked to your parents, and hope the nice people here can help you set up your router properly. You do not need to justify anything to her, or ask anything from her. You don't have to try to catch her downloading/uploading. If you wish you can explain the situation to her and what's going to happen next - or if you'd rather your parents talk to her, ask them, they seem reasonable. Set up the bandwidth limit for her in any case. Remember, if she's downloading/uploading copyrighted content and something happens, it's your parents who are going to get in trouble - and I'm sure they're not even aware of it.