I don't think I have evern see a cable where each cable itself is a twisted pair. A wire pair is needed to twist the cables around each other in order to reduce the amount of noise coming in from the wiring, since even on non-twisted pairs of cabling, if you were to leave just one of the two wires disconnected, you'd find that while DSL will continue to work, if the cabling is running near electrical wiring or anything creating electrical interference, you will have a nice, noticable humming on your line 🙂 . In older phone setups, I also believe the additional wiring pair was used to power older phones. In this case, the second pair exists simply to serve as a route for a second phone line or for spare/misc use.
As far as connecting the wiring, that should work, but you want to ensure that the second wiring pair is only connected from the POTS/DSL Splitter up to the jack where the modem is connected to using the inner wiring pair at the jack. You don't want Multi-line phones on that second pair since it defeats the purpose of the filter.
As far as CAT3 cabling goes, CAT3 is indicated by using Orange/Striped Orange and Blue/Striped Blue Wiring pairs. If you have the traditional Red, Green, Yellow and Black cabling, it's probably the standard, non-twisted telephone wiring. You can verify what kind of cabling it is though by looking at the information provided on the cable jacket, should you have extra wiring around or a long enough stretch available.
