At this point it is hard to tell what exactly is causing the "bad response from modem" message to occur. Can you fax it successfully anywhere? You could try faxing to us, if you like (604)736-6431.
Do you have another system w/modem installed that you can try this on? If so, install QIW on that system and try faxing. This would help to eliminate some factors.
If you experience the same results, does this system have the same USR modem? Is there any system in your office that has a different modem that you could try it on?
Let us know your results.