The confusion here is in what you're trying to accomplish and the ports you are using. The 110 is designed to both power telephones in your home and use your existing PSTN line.
To use the PSTN line, you need to connect the LINE port directly to the PSTN feed where it comes into your home BEFORE it goes off to the rest of the outlets in the home. That gives the OBi the outside line it wants. In doing this, you will want to ensure that the phone line ends there - i.e. it does NOT go on to feed the rest of the phone outlets in your house, i.e. you need to break the connection.
You can then connect the PHONE port of the OBi 110 to any phone jack in the house, and this will power all the phone jacks and work fine.
If you're not going to use a PSTN line, then as others have said simply disconnect it in the phone box and plug the PHONE port of the OBi 110 into any phone jack in the house.
If you are going to keep the PSTN and want to hook to the PSTN somewhere near a phone outlet instead of where the PSTN comes into the home (likely your basement), you can verify that only the RED/GREEN wires are hot at each outlet and that YELLOW/BLACK are dead. If so, then go down where the PSTN line connects to your house wiring and switch it to connect to YELLOW/BLACK. Then, where you want to plug the OBi LINE port in, change that outlet to YELLOW/BLACK (or by putting a two outlet receptacle in, one is RED/GREEN and the other is YELLOW/BLACK and labeling them PSTN and PHONES). Plug the LINE port into YELLOW/BLACK and plug the PHONE port into RED/GREEN. This will power all the phones in your home AND hook the PSTN to the OBi 110.
I ended up putting my OBi 110 in the basement, on a wall by the PSTN feed, and it then feeds the rest of the house.