Sure, no problem having the power cable alongside the ethernet.

With a half-inch hole, I don't know if the RJ45 plugs will fit through the hole or not -- might need to just feed a raw cable end through the hole, and have somebody crimp a new connector onto it afterward.

One thought, if you're going to do a ceiling mount: shop around for a small, modern router (no more than USD$20) with keyhole slots for screws on the underside. Makes mounting easier, and probably will look better too. The model I would like to recommend (tp link wr720n v1) is no longer sold, but was small, cheap, and very low on power usage.

Configure the downstairs router as a "router", with a separate SSID on a different channel from the upstairs one.

Cheers